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2015-7-25: Don't Let Fear Keep You On The Sidelines

DON'T LET FEAR KEEP YOU ON THE SIDELINES

 

Fear is a powerful emotion and market losses can be fear inducing. But history shows that emotion is a poor compass for charting your investment course.

 

While the U.S. stock market, as represented by the S&P 500 Index, has risen a stunning 205.66% as of March 31, 2015, since its low on March 9, 2009, some investors are still reluctant to participate after the turbulence that accompanied the 2007-2008 "Great Recession".¹

 

Fleeing the market certainly may have felt like the right thing to do in the depths of the financial crisis. However, history shows that making investment decisions based on emotion has rarely proven successful. Greed may have led an investor to own too many technology stocks when the bubble burst on that industry in 2000. Earlier, fear may have caused investors to cash out of stocks following the crash of 1987 and miss some or all of the subsequent rebound.

 

Fast forward to 2015. The reality is that investors who missed the extraordinary rally that has occurred since March 2009 may have helped to put their long-term accumulation goals at risk. This is especially true for investors with shorter time horizons, such as those approaching retirement.

 

Consider the following: From 2010 through 2014, U.S. stocks recorded an average annualized return of 15.5%, compared to 0.1% for money market securities.² The nearly nonexistent returns associated with cash-like investments could have a powerful impact on your purchasing power over time.

 

Maintain Balance to Manage Risk

 

One of the key determinants to investment success over the long term is having a disciplined approach to balancing short-term risk (stock price volatility) with long-term risk (loss of purchasing power). Finding a "middle ground" in your investment philosophy -- and portfolio allocation -- may go far toward helping you manage overall risk and realize your investment goals. Your Certified Financial Planner™ can help you to determine the correct balance between your risk tolerance and lifetime goals.

 

History indicates that stocks have tended to outperform other asset classes as well as inflation over long periods of time.³ However, investors who are too focused on the long term may over-allocate their portfolios to stocks -- and over-expose themselves to short-term volatility risk. Alternatively, investors who are extremely averse to short-term risk may do the opposite and face increased risk of not meeting long-term objectives.

 

Easy Does It

 

How might this balanced approach to risk be used to get investors back in the market? One of the best ways to take emotion out of investing is to create an investment plan (called an Investment Policy Statement) and stick with it.

 

One of the best ways to ease into investing during a period of high market volatility is through a systematic investment plan called Dollar Cost Averaging (DCA).³ Dollar Cost Averaging is a process that allows investors to slowly feed set amounts of money into the market at regular intervals.

 

Although DCA does not assure a profit or protect against a loss in declining markets, it can help achieve some important objectives. First, it gives investors a measure of control while eliminating much of the guesswork -- and emotion -- associated with investing. Second, DCA can help investors take advantage of the market's short-term price fluctuations in a systematic way -- by automatically buying more shares when prices are low, and buying fewer when prices are high.

 

It is important to remember that periods of falling prices are a natural part of investing in the stock market. By maintaining a long-term focus and following a balanced approach to managing investment risk, you may better position yourself to meet your financial goals. Your Certified Financial Planner™ can help you identify which strategies may be best for your situation.

 

¹ Wealth Management Systems Inc. Stocks are represented by the daily closing price of Standard & Poor's Composite Index of 500 Stocks (the S&P 500), an unmanaged index that is generally considered representative of the U.S. stock market. The percentage increase represents the gain through March 31, 2015. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

 

² Wealth Management Systems Inc. For the five years ended December 31, 2014. U.S. stocks are represented by the S&P 500 Index. Money market securities are represented by Barclay's 3-Month Treasury Bill rate. Example does not include commissions or taxes. Past performance is no guarantee of future results.

 

³ Dollar cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your financial ability to continue purchasing shares through periods of high and low prices. This plan does not assure a profit and does not protect against loss in any markets.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

2015-6-27: Do You Know Who Your Beneficiaries Are?

DO YOU KNOW WHO YOUR BENEFICIARIES ARE?

 

When was the last time you checked the beneficiary designations on your retirement plans? It is an important -- but often overlooked or forgotten -- aspect of wealth transfer.

 

Many investors have taken advantage of pretax contributions to their company's employer-sponsored retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program, but you have not named beneficiaries for your account, you may be overlooking an important housekeeping issue.

 

An improper designation could make life difficult for your family in the event of your untimely death by putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens. Further, if you have switched jobs, become a new parent, been divorced, or survived a spouse or even a child, your current beneficiary designations may need to be updated.

 

Consider the "What Ifs"

 

In the heat of divorce proceedings, for example, the task of revising one's beneficiary designations has been known to fall through the cracks. While a court decree that ends a marriage does terminate the provisions of a will that would otherwise leave estate proceeds to a now-former spouse, it does not automatically revise that former spouse's beneficiary status on separate documents such as employer-sponsored retirement accounts and IRAs.

 

Many IRA owners may not be aware that after their death, the primary beneficiary -- usually the surviving spouse -- may have the right to transfer part or all of the IRA assets into another account. Take the case of the IRA owner who has children from a previous marriage. If, after the owner's death, the surviving spouse moved those assets into his or her own IRA and named his or her biological children as beneficiaries, the original IRA owner's children could legally be shut out of any benefits.

 

Also keep in mind that the law requires that a spouse be the primary beneficiary of a 401(k) or a profit-sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage -- if a new spouse is already financially set or if children from a first marriage are more likely to need the money. Single people can name whomever they choose. And non-spouse beneficiaries are now eligible for a tax-free transfer to an IRA.

 

The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners and their beneficiaries. Consult your CPA® or Certified Financial Planner™ on how these rule changes may affect your situation.

 

To Simplify, Consolidate

 

In today's workplace, it is not uncommon to switch employers every few years. If you have changed jobs and left your assets in your former employers' plans, you may want to consider moving these assets into a rollover IRA. Done correctly, there is no tax consequence for doing a rollover, but they can be several advantages. Consolidating multiple retirement plans into a single tax-advantaged account can make it easier to track your investment performance and streamline your records, including beneficiary designations.

 

Review Your Current Situation

 

If you are currently contributing to an employer-sponsored retirement plan and/or an IRA contact your benefits administrator -- or, in the case of an IRA, the financial institution -- and request to review your current beneficiary designations. You may want to do this with the help of your Certified Financial Planner™ or CPA® to ensure that these documents are in sync with other aspects of your estate plan. Ask your financial professional about the proper use of such designations as "per stirpes" and "per capita" as well as about the proper use of trusts to achieve certain estate planning goals. Your planning professional can help you focus on many important issues, including percentage breakdowns, especially when minor children and those with special needs are involved.

 

Finally, be sure to keep copies of all your designation forms in a safe place and let family members know where they can be found.

 

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax or legal professional to discuss your personal situation.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

 

2015-6-13: Retirement Confidence is All in the Plan

RETIREMENT CONFIDENCE IS ALL IN THE PLAN

 

Americans' confidence in the ability to afford a comfortable retirement continues to rebound from the lows reported between 2009 and 2013. The increasing optimism is coming largely from workers who indicate they and/or their spouse have a retirement plan, such as a defined contribution (401(k)-type) plan, defined benefit (pension) plan, or individual retirement account (IRA). This is one of the key takeaways from the 25th annual Retirement Confidence Survey (RCS) -- the longest-running survey of its kind, conducted by the nonpartisan Employee Benefit Research Institute (EBRI)¹ and Greenwald & Associates.

 

According to the 2015 RCS, among workers with access to some type of retirement plan, more than one in five (22%) are "very confident" they will have enough money to live comfortably in retirement, up from 13% in 2009 -- a time when devastating losses to retirement plan assets caused by the financial crisis of 2007-2008 crushed investor confidence. This year an additional 36% reported being "somewhat confident" in their ability to live comfortably in their later years, while 24% are "not at all confident" in their retirement prospects. This percentage has remained statistically the same for the past two years.

 

Paying the Bills

 

The data also showed that workers are becoming more confident in their perceived ability to pay for living expenses in retirement. For example, 37% of workers report being "very confident" that they will be able to pay for basic living expenses -- up from 29% in 2014. Similarly, a smaller but growing percentage of workers express confidence in their ability to meet medical expenses (18%) and long-term care expenses (14%) -- up from 12% and 9% respectively in 2011.

 

Retirement Plans Make the Difference

 

Among the total survey population about two-thirds are somewhat or very confident in the steps they are taking to prepare for retirement. Yet the story is quite different for workers without access to a retirement plan. Among this group, only 23% have done a retirement needs calculation and 64% say they have saved less than $1,000. By contrast, among those with access to a retirement plan, 35% have saved at least $100,000 compared with just 3% of those with no plan.

 

Delaying Retirement May Not Be an Option

 

Perhaps as a way to make up for their lack of planning, 16% of workers in the 2015 study say the age at which they plan to retire has changed and, among this group, 81% plan to retire later than originally expected. But, the researchers contend, this plan may fall flat for many. "Workers still expect to work longer to make up for any savings short falls," stated Craig Copeland, senior research associate at EBRI and coauthor of the study. "However, many retirees continue to report that they retired before they expected to due to an illness or disability, needing to care for others, or because of a change at their job. Consequently, relying on working longer is not a solid strategy for retirement preparedness."

 

These are just some of the findings in the latest Retirement Confidence Survey. To learn more or to see the study in its entirety, visit EBRI's website.

 

¹ Employee Benefit Research Institute and Greenwald & Associates, 2015 Retirement Confidence Survey, April 21, 2015.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

2015-3-21: IRS Clarifies IRA Rollover Rules

IRS Clarifies IRA Rollover Rules

 

For 2015, the maximum pre-tax money that you can contribute to an employer-sponsored plan, such as a 401(k), 403(b) or 457, is $18,000 ($24,000 if you are age 50 or over). For many people, this ceiling is adequate. However, for some high-income employees, even the maximum contribution is not enough to build a nest egg sufficient to maintain their lifestyle in retirement. For this reason, they often contribute an additional after-tax amount to their retirement plan.

 

The problem came when they decided to retire. Ideally these employees would want to roll the pre-tax portion of their contributions to a Traditional IRA, and the post-tax portion to a Roth IRA. The IRS, however, was inconclusive about whether this was allowed.

 

After years of ambiguity, the IRS ruled definitively in September of 2014 that participants in employer-sponsored retirement plans can roll after-tax contributions into a Roth IRA tax free.

 

IRS , Guidance on Allocation of After-Tax Amounts to Rollovers, "provides rules for allocating pretax and after-tax amounts among disbursements that are made to multiple destinations from a qualified plan."¹ Importantly, the Notice states that all disbursements from a retirement plan made at the same time will be treated as a single distribution even if they are sent to multiple new accounts. 

 

Prior to this ruling, the IRS treated distributions from a retirement plan that were rolled over to multiple new accounts as separate distributions, each requiring that a proportional share of pretax and after-tax monies be disbursed.²

 

A Simplified Process

 

Now individuals holding both pre-tax and after-tax amounts in their plan can transfer -- through direct, trustee-to-trustee rollovers -- the pretax portion of the distribution (including earnings on after-tax amounts) to a traditional IRA and the after-tax portion of the distribution to a Roth IRA. In the past, this could only be accomplished through indirect 60-day rollovers, not through simplified direct rollovers.²

 

More Clarification, Please

 

As with many IRS rulings, Notice 2014-54 raised many questions with taxpayers. In response, the IRS recently issued some answers to those commonly asked.

 

Q: If I have both pretax and after-tax monies in my retirement account, can I roll over just the after-tax monies to a Roth IRA, leaving all of the pretax monies intact?

 

A: No, the new rule does not change the requirement that partial distributions from a plan must include a "proportional share" of the pretax and after-tax amounts. 

 

Example: If your account balance is $100,000 and consists of $80,000 in pretax amounts and $20,000 in after-tax amounts, and you request a distribution of $50,000, your distribution would consist of $40,000 of pretax amounts and $10,000 of after-tax amounts.²

 

In order to roll over all of your after-tax contributions to a Roth IRA, you must take a full distribution (all pretax and after-tax amounts), roll over all the pretax amounts directly to a traditional IRA or another eligible retirement plan, and roll over all the after-tax amounts directly to a Roth IRA.  

 

Q: Can I roll over my after-tax contributions to a Roth IRA and the earnings on my after-tax contributions to a traditional IRA?

 

Yes, since earnings on after-tax contributions are considered pretax monies, after-tax contributions can be rolled over to a Roth IRA while the earnings on those contributions can be directed to a separate traditional IRA and avoid being taxed until they are distributed.

 

Plan Sponsors: A New Opportunity

 

The new guidelines present an opportunity for plan sponsors to reach out to participants to determine which individuals have after-tax money in their plans and explain the new rules -- and the new opportunity -- to them. Further, for those participants who are not currently making after-tax contributions, advisors may want to encourage them to do so, if their employer plan allows.

 

High-earning employees who are not making after-tax contributions are missing out on the chance to sock away significantly more while benefitting from lower income taxes and tax-deferred investment growth. See your Certified Financial Planner™ or CPA® for guidance on the best asset allocation and IRA rollover strategy for you.

 

 

¹ The Internal Revenue Service, Notice 2014-54, Guidance on Allocation of After-Tax Amounts to Rollovers, September 18, 2014.

 

² The Internal Revenue Service, Employee Plans News, December 23, 2014.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

2015-2-21: Rising Longevity and Your Retirement

RISING LONGEVITY AND YOUR RETIREMENT
 

Longevity is on the rise. Learn how to make your money last as long as you do.
 

New research conducted by the Society of Actuaries (SOA), a leading membership-based organization for actuaries in the United States and Canada, revealed that older Americans are living longer than previously estimated. Specifically, SOA's data showed that since its last report published in 2000 the life expectancy of men age 65 has risen two years from age 84.6 to age 86.6 in 2014. Similarly, among 65-year-old women, longevity rose 2.4 years, from age 86.4 in 2000 to age 88.8 in 2014.¹

 

Commenting on the findings, Dale Hall, managing director of research for the SOA stated, "The purpose of the new reports is to provide reliable data that actuaries can use to assist plan sponsors and policy makers in assessing the financial implications of longer lives."¹

 

What about individuals? How might this news affect the financial lives of retirees and/or the retirement planning strategies of those nearing retirement age? Those additional two years could mean that the time the typical person might expect to spend in retirement could increase by 10% or more than he or she originally anticipated. As a result, the values associated with a retirement accumulation and/or distribution plan may need to be adjusted accordingly.

 

For example, individuals still accumulating retirement assets who had previously determined they needed a $1 million nest egg, would now need $1.1 million to finance those two added years. For someone who is in mid-stream on a retirement savings plan, increased longevity could mean boosting contributions by 20% or more to catch up. Similarly, individuals who are already retired might need to scale back their annual withdrawal amounts in order to create reserves for those extra two years.

 

Making Your Money Last

 

Because of increased longevity, managing cash flow in retirement is more critical than ever. As a starting point you will need to clarify your current financial situation, as well as any significant changes you expect. Two sources will provide this information:

 

▪ A Comprehensive Financial Plan, which provides a snapshot of your assets, debt, and cash reserves, and projects both growth and distributions over your expected lifespan. A well-crafted plan builds in a margin of safety that protects you from unexpected events, such as a longer than expected life expectancy, emergencies, and downturns in the market.

▪ Your monthly or annual budget, with itemized breakdowns of your income and expenses. If you haven't retired yet, it's a good idea to prepare a projected budget of your retirement income and expenses.

▪ An Investment Policy Statement, which is a blueprint of your investment strategy. It is an important document from your financial planner that will help keep you on track during times of market volatility and decline.

 

Even with reasonable assumptions about investment returns, inflation, and retirement living costs, it is likely you will encounter numerous changes to your cash flow over time. Experts often recommend a comprehensive annual review of your financial situation and goals.

 

As you monitor your finances keep the following factors in mind, as any one of them could affect your cash flow and necessitate adjustments to your plan and investment strategy.

 

▪ Interest rate trends and market moves may result in an increase or decrease in income from your savings and investments.

▪ Changes in federal, state, and local tax rates and regulations.

▪ Changes in Social Security or Medicare benefits or eligibility, as well as new rules affecting employer-sponsored retirement benefits and private insurance coverage.

▪ Inflation and health care costs.

▪ Life events such as marriage, the death of a spouse, or the addition or loss of a dependent may also affect your cash flow.

 

It is worth paying close attention to cash flow, making sure you budget carefully, and monitoring your income and expenses frequently. Your Certified Financial Planner™ can update and revise your plan, and help you get back on track whenever you believe that significant changes have taken place.

                   

¹ Society of Actuaries, press release, "Society of Actuaries Releases New Mortality Tables and an Updated Mortality Improvement Scale to Improve Accuracy of Private Pension Plan Estimates," October 27, 2014. The calculations presented are based on public mortality tables, which were developed with certain populations in mind, and reflect probabilities based on averages in large populations.    

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

2015-2-7: Falling Oil Proices: Bad News, Then Good News

FALLING OIL PRICES: BAD NEWS, THEN GOOD NEWS

 

As crude oil prices hit their lowest point in more than four years, consumers around the globe are asking, "What are the potential benefits and downside of lower oil prices?"

 

Oil prices, which are down nearly one-third since last summer's peak, have come under pressure due in large part to new energy supplies -- notably from the United States which are tipping the balance of supply and demand.¹ Over the past several years, U.S. oil production has increased more than 70% and, according to The New York Times, "the United States is poised to surpass Saudi Arabia as the world's top producer, possibly in a matter of months."²

 

Cheap Oil: Good Medicine or Economic Malaise?

 

Do lower oil prices have a positive or negative effect on the global economy? The answer is "yes."

 

In the short term, we have seen the share prices of oil stocks plummet --particularly US oil companies, where gas and oil is extracted from shale formations using hydraulic fracturing or fracking. Many US shale oil producers have far higher costs than conventional rivals, and thus the drop in oil prices more significantly affects their net profit or loss margins. However, many US oil companies need to carry on pumping to generate at least some revenue stream to pay off debts and other costs, so fracking will continue. 

 

Furthermore, industry affected companies, like Caterpillar, also fell in value. Caterpillar supplies much of the machinery and engines used for fracking. When oil prices dropped, the demand for new equipment came to a halt.

 

However, cheaper oil is good for the American economy in the long run. It is estimated that savings from tumbling gas prices represent the equivalent of a $75 billion tax cut for U.S. consumers -- or roughly $1,100 per family on an annual basis if prices remain at current levels (as of December 2, 2014).³ More disposable income in the hands of consumers is likely to boost consumer spending, which, in turn, feeds economic growth. Case in point: Automakers reported total sales for the month of November were up 4.6% to 1.3 million, the best monthly finish since 2001.4

 

In a broader economic context, lower oil prices reduce the cost to manufacturers of producing and transporting their goods, and to airlines of operating their aircraft, thereby improving profit margins and investor sentiment.

 

On a global scale, lower oil prices should boost consumption and lower manufacturing costs in oil-importing economies, particularly in Europe, where sluggish economic growth has much of the continent teetering on the brink of recession.

 

The Deflation Factor

 

When prices fall across the board, consumers put off making major purchases in the hopes that prices will fall even farther. When spending stalls, companies' revenues suffer and pressure mounts to cut costs by laying off workers, freezing or reducing wages, or raising the price of the goods they produce -- all of which can further hinder consumer spending and deepen the deflationary cycle.

 

The good news/bad news nature of deflation has everything to do with what is driving the drop in prices of goods and services. For instance, if it is a lack of demand -- as many economists say is currently the case in the Eurozone -- deflation could be damaging. If, however, it is due to a boost in supply -- such as the oil and gas boom in the United States -- it can prove beneficial to economic growth.5

 

Takeaways for Investors

 

Similarly, from an investment perspective, lower oil prices present a double-edged sword. On the positive side:

Low-priced oil should help to buoy U.S. stocks by strengthening the economy and by extending the period of low interest rates established by the Federal Reserve.6

 

On the downside:

In the short-term, investors in the energy sector -- and commodities markets in general -- should prepare to see the plunge in oil prices reflected in the price of the securities they own.

 

Contact your Certified Financial Plannerâ„¢ or Certified Public Accountant to learn more about oil price trends and the affect they may have on your financial situation.

 

The New York Times, "Morning Agenda: Oil Prices in Free Fall," December 1, 2014.

The New York Times, "Free Fall in Oil Price Underscores Shift Away From OPEC," November 28, 2014.

MarketWatch, "U.S. households could save $1,100 from falling gas prices," December 2, 2014.

USA Today, "SUVs hot in best November auto sales since 2001," December 2, 2014.

Bloomberg, "U.S. Gains From Good Deflation as Europe Faces the Bad Kind," October 26, 2014.

Reuters, "Low oil prices boost stocks, deflation risk: James Saft," November 25, 2014.

 

2015-1-28: Investing Strategies for a Seesaw Market

INVESTING STRATEGIES FOR A SEESAW MARKET
 
Happy New Year! Many investors were happy to put 2014 behind them, especially the last half of the year, which was characterized by dramatic market swings from record lows to record highs. What can we expect for 2015?

 

CONFLICTING MARKET FORCES

 

The increased volatility in 2014 resulted from strong conflicting influences on the market. Globally, we saw conflicts on multiple fronts – Russia vs. Ukraine, Israel vs. Palestine, and continuing internal battles in Syria, Afghanistan and Iraq. The market responds to news, and went into a steep dive.

 

Then, the market came all the way back because of the strong U.S. economy – corporations are making good profits, real estate is rebounding strongly, and interest rates are still low.

 

On top of that, gas prices came down, putting more money in everyone's pockets. In the short term, oil company stocks took a plunge. However, in the long-term, most economists feel that lower gas prices are a net stimulus to the economy. Already, automobile manufacturers, airlines and logistics companies (like UPS and FedEx) are performing much better.

 

WHAT'S IN STORE FOR 2015?

 

In 2015, the U.S. economy should continue to do well, and the U.S. market should keep pace, perhaps even better than in 2014. Meanwhile, the governments in Europe and Asia have reduced their interest rates in order to stimulate their economies. This worked well for the U.S. in 2008, and it is already making a difference in the international markets. The European Union will still have challenges, such as Greece's economy, and attacks by Muslim extremists. China will still be dealing with long-term issues such as corruption and equality. However, every asset class has its day in the sun, and this may be the year that the international markets take off, similar to the U.S. market after March 2009.

 

DIVIDENDS PROVIDE STABILITY

 

In a volatile market, dividends help to provide a stable anchor. Investors experienced this first-hand during the Great Recession of 2008 and 2009. While stock share prices swung wildly during this period, dividends tended to stay relatively stable. This was because the large, mature companies that offered dividends tended to pay out the same dividends no matter what was happening to their stock price. Consequently, investors who depended on the dividends for income came through the market bubble relatively unscathed.

 

Dividends are an important component of overall return. John Bogle, writing for IndexUniverse.com, pointed out that including reinvestment of dividends gave the Standard and Poors 500 (the index that contains 500 of the largest U.S. companies) an average return of 10.4% by the end of 2007. Without dividends, the return was only 6.1% compounded.

 

Diversification is important when it comes to dividends as well. A properly-diversified strategy (ie not putting all your money into just one dividend-paying mutual fund or stock) can pay you higher dividends as well as offer greater safety.

 

KEEP YOUR EYES ON LONG-TERM PERFORMANCE

 

The recent good performance of the U.S. market, and the poor performance internationally, has made some investors question why they have international holdings at all. This is because the out-performance of the U.S. market is welcome but temporary. Although the U.S. market is huge (49% of the global market), it is 33rd out of 45 countries in terms of 10-year performance ¹.

 

People tend to have short memories when it comes to investing. Between 2000 and 2009, the S&P 500 had a negative return. This is why those investors who only invested only in U.S. companies during those years refer to them as the "lost decade" ². However, in that same period, international investments had a positive return. If you had a globally-diversified portfolio, you would have fared much better.

 

It's important not to lose sight of long-term performance because people are living much longer than before. It would not be unusual if you spent 25 to 30 years in retirement. When you are depending on an investment to help fund your retirement, you want to look at long-term performance, not what occurred in the last six months.

 

¹ Morningstar Direct 2014 MSCI Country Indexes

² Wall Street Journal 10/15/2009 "The Lost Decade of Stock Investing"

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2015-1-10 12 MONTHS OF SMART SAVINGS TIPS

12 MONTHS OF SMART SAVINGS TIPS

 

Need help finding ways to make the most of your money all year long? Start the year right with these month-by-month saving and spending tips.

 

January --After-Christmas sales are a great way to stock up on holiday-themed products such as wrapping paper, candles, cards, and decorations. Most retailers reduce prices on these items by 50% or more. But don't stop there. Many specialty and gourmet food items, and items of clothing – especially winter items like sweaters, hats, gloves, and scarves -- are put on clearance racks and sold for a fraction of their original price.

 

February -- Getting a raise? Consider adding the extra money to your retirement savings plan. Not only will the money grow tax-deferred, but the extra income will not push you up into a higher tax bracket. Alternatively, open a special account for next year's holiday shopping or your summer vacation.

 

March -- March is considered a low-season travel month to Europe. That's the time of year when tourists are scarce. That means that lines will be shorter, and reservations at hotels, restaurants and attractions will be much easier to get. Normally crowded destinations such as London, Paris, and Rome are leisurely, and hotels and airfares may offer some of their lowest rates.

 

April --If you are among the majority of Americans who get a tax refund, consider using that money to pay down credit card debt, to make an extra principal-only payment on your mortgage, or to build the foundation of an emergency fund.

 

May --The Department of Energy estimates that water heating can account for 14% to 25% of the energy consumed in your home. Lowering the temperature on your hot-water heater during the summer months will help cut costs. If you take a vacation, turn off the heat and air conditioning.

 

June --Vegetables fresh from our garden are less expensive than canned and frozen foods -- and more nutritious too! Start small -- try some tomato plants or Asian vegetables that are not available in the market. (Don't forget to water and fertilize regularly!)

 

July --Play sports? Buy your equipment at used sporting goods stores. From catcher's mitts to surfboards, these stores sell their wares at a fraction of the original cost.

 

August --Cash in on summer clearance sales. Spruce up next summer's wardrobe or outfit yourself for a winter cruise. Also, start pricing for Christmas shopping.

 

September --In September and October auto dealers try to clear their lots to make room for the next year's models. By haggling, you may be able to shave hundreds if not thousands off a new car's sticker price.

 

October --The Department of Energy estimates that heating and cooling account for 50% to 70% of the energy used in the average American home. Schedule a heating and cooling system tune-up, insulate your attic, replace furnace filters, and have your chimney cleaned.

 

November --Many charities begin active fundraising during this month. Before sending a donation to a charity, check out its reputation with the National Charities Information Bureau, or the Better Business Bureau Wise Giving Alliance.

 

December “Hopefully, you now have a few extra dollars to spare. Kick off 2016 by starting an investment. A globally-diversified portfolio of equities and bonds will help you keep up with inflation, and build future stability and security.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-12-6 Strong Dollar, Weak Dollar -- What It Means For You

STRONG DOLLAR, WEAK DOLLAR -- WHAT IT MEANS FOR YOU
 

You may have heard news reports about the decline or strength of the U.S. dollar. Your reaction may be a yawn, but the truth is that the value of the dollar has ripple effects throughout the economy, ultimately affecting your day-to-day finances as well as your investments.

 

Making Sense of the Exchange Rate

 

What does it mean when the value of the U.S. dollar has declined or increased? In plain English, it refers to the amount of money you get when you exchange a dollar for another country's currency. When the dollar rises, you get more bang for your buck. When it declines, the opposite occurs.

 

If you have traveled abroad, you may have experienced the effect firsthand. If the dollar is weak vis-à-vis other currencies, it costs you more when visiting another country because you will not receive as much of the foreign currency when you exchange your dollars.

 

Here at home, the relative strength or weakness of the U.S. dollar affects you both in the interest rate you are charged for loans and in everyday purchases. When you purchase a car, clothes, electronics like a cell phone or computer, chances are that many of these items are produced and imported from abroad. The price you pay for these goods is going to depend on the value of the dollar.

 

When the dollar is strong, prices of consumer goods tend to be stable and/or increase more slowly. When the dollar is weak, prices may increase. Higher consumer prices also can lead to inflation and higher interest rates. These can affect the rate you will be charged for a mortgage or car loan.

 

What About Your Investments?

 

A properly-diversified portfolio should include international as well as U.S. companies. This tends to give you more consistent performance and reduce volatility. As more individuals invest overseas, currency risk becomes a major factor to consider.¹ For a U.S. investor, a currency gain or loss stems from a fall or rise in the value of the dollar against the currency in which the investment is made. A fall in the value of the dollar relative to the local currency will increase your return; a rise in the dollar will lower your return.

 

Currency fluctuations arise from a number of factors, including the relative economic strength of each country and local political conditions. There are also indirect influences on exchange rates, such as trade balances, which can result in adverse movements of exchange rates and equity prices.

 

Managing Currency Risk

 

Portfolio managers use three basic approaches to manage currency risks. The first approach is not to hedge at all, assuming that currency fluctuations will wash out over a period of time. The second approach is to hedge fully, which may reduce the volatility of the portfolio. The third approach is to actively manage hedging, choosing when and how much to hedge. This approach is gaining popularity. Many investment firms now offer some kind of currency service, and some firms with substantial international investments even appoint a separate manager to handle currency as a distinct asset class.

 

Currency fluctuations are a fact of your financial life. This article offers only an outline. It is not a definitive guide to all possible consequences and implications of any specific investment strategy. For this reason, be sure to seek advice from your Certified Financial Planner™ or CPA®.

 

¹ Changes in foreign currency exchange rates will affect the value of currency investments. Foreign investments may entail greater risks than domestic investments due to currency exchange rates; political, diplomatic, or economic conditions; and regulatory requirements in other countries. Financial reporting standards in foreign countries typically are not as strict as in the United States, and there may be less public information available about foreign companies. These risks can increase the potential for losses.

 Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

 

2014-11-22 2014 Year-End Tax Planning

2014 YEAR-END TAX PLANNING

 

Although tax day is still months away, it is not too early to think about ways to curb your 2014 tax bill. Here are some year-end pointers for minimizing or delaying taxes.

 

A Question of Timing

 

The most basic form of year-end tax planning involves deferring income and accelerating deductions, keeping in mind the tax consequences for the current as well as the subsequent year. For instance, depending on your circumstances, you may be able to delay receiving commission or bonus compensation until after December 31. However, be sure to consult with a tax advisor prior to using this planning technique to ensure you are not running afoul of the IRS's "constructive receipt" rule, which treats income as taxable when it is earned as opposed to when it is received. You also may wish to explore opportunities to accelerate deductions for charitable contributions, state and local taxes, deductible interest payments, alimony, or other payments for which you can control the timing.

 

Timing can also play a key role when assessing the tax implications of your investments. For example, if you have stocks that have performed well this year, consider holding on to them at least until January 2015. Doing so will allow you to delay paying taxes on your gains for another year.

 

Other Investment-Related Tax Strategies

 

In addition to timing, there are some fairly straightforward steps you can take to potentially reduce the long-term impact of taxes on your portfolio.

 

Offset gains with losses --When you sell securities, the tax on any profits will vary according to the length of time you have held the investment. Securities sold within a year of their purchase can generate short-term capital gains, which are taxed at the investor's ordinary income tax rate -- up to a maximum rate of 39.6% for the highest earning individuals.

 

Gains from the sale of securities held for more than one year are considered long-term gains and are taxed at a maximum rate of 15% for most Americans, but that rises to 20% for those with taxable incomes of over $400,000 ($450,000 for joint filers). In addition, a new Medicare surtax on net investment income, which includes capital gains, results in an overall top long-term capital gains tax rate of 23.8% for high-income taxpayers.

 

What is the best way to make these tax rules work in your favor? If you have experienced gains in your portfolio this year, congratulations, but consider selling assets that will generate a capital loss in order to balance out that gain. The IRS allows you to offset capital gains with capital losses to the extent of your total gains -- and above that, taxpayers are allowed to deduct up to $3,000 against ordinary income each year. Losses in excess of that limit can be carried over to the next year.

 

Income Shifting Through Gift Giving

 

Year-end is also the right time to make monetary gifts to children, grandchildren, and others. The annual gift tax exclusion for 2014 is $14,000 per individual or $28,000 for spouses combined. This strategy works particularly well for those who want to give away significant assets in a relatively short amount of time. For instance, assuming you and your spouse have two children (who are both married) and four grandchildren, you could give away $224,000 a year -- $14,000 from each of you to each family member -- without affecting your lifetime gift tax or estate tax exemption. Over time, these annual gifts will help to shift considerable assets out of your taxable estate as well as any future taxable income associated with the gifted money.

 

On the Horizon for 2015

 

President Obama's 2015 fiscal year budget contains a few provisions that -- if they materialize into law -- could have an effect on your best-laid tax and retirement planning endeavors. The most significant of these are:

 

▪ A proposal to cap itemized deductions at a 28% tax rate for top earners

▪ A cap on the aggregate value of qualified plan accounts (IRAs, 401ks, etc.)

▪ Required minimum distributions from Roth IRAs

▪ An elimination of certain Social Security benefit-claiming strategies

 

While we cannot foresee -- or control -- the outcome of these or any other proposed policy changes, there are many tangible steps that you can take to help keep your taxes in check. Work with your Certified Financial Planner™ and CPA® to make tax planning an integral part of your overall financial plan.

 

This communication is not intended to be tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your tax professional to discuss your personal situation.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-10-28 Keep Your Retirement Income Flowing


KEEP YOUR RETIREMENT INCOME FLOWING

 

After years of accumulating assets, the time will come for you to begin drawing on those assets to provide income throughout retirement. Before that day arrives, be sure to consider some steps to assist you in keeping your retirement income stream flowing.

 

Set a Sustainable Withdrawal Rate

 

As tax-advantaged retirement savings vehicles such as 401(k)s and Individual Retirement Accounts (IRAs) have proliferated, so too has the trend toward self-funding of retirement. Defined benefit pension plans, once the norm for large companies, are now very rare. This is a result of the effort by major corporations to relieve themselves of the liability of funding their employees' retirement. In the future, the share of personal assets required to fund retirement is sure to grow, which makes knowing how much you can withdraw from your investment accounts each year -- and still maintain a healthy cushion against uncertain market and personal circumstances -- a necessity to any retirement income plan.

 

A number of factors will influence your choice of withdrawal rates. These include your longevity, the potential impact of inflation on your assets, and the variability of investment returns. Therefore, when crafting a retirement asset allocation, a key question will be how much to allocate to stocks.¹ Certainly you will want to maintain enough growth potential to protect against inflation, yet you will also need to be wary of being too exposed to stock market gyrations. Generally speaking, those who have planned well and amassed enough assets to comfortably finance retirement may be in a better position to include more stocks in their portfolios than those who enter retirement with less.

 

Developing a Withdrawal Rate

 

The goal of your withdrawal plan is to crack your nest egg in such a way as to provide a reliable stream of income for as long as you live. The question is, "How much can I plan to withdraw each year without depleting my financial resources?" Academic studies suggest a yearly withdrawal rate of 3% to 4% of your portfolio's value based on an asset allocation of 60% stocks and 40% cash and fixed-income investments.² Those who have properly-diversified, balanced portfolios may be able to safely withdraw a little more, about 5% per year. By staying within this withdrawal range you potentially should be able to maintain your portfolio's value in real, inflation-adjusted terms for an extended period of years, although past performance is no guarantee of future results.

 

Tax Rules Affecting Retirement Account Withdrawals

 

IRA and other retirement plan owners may be subject to a 10% income tax penalty if withdrawals begin before age 59½. Also, mandatory withdrawals, called "Required Minimum Distributions" or "RMDs," must begin by age 70½. Failure to take full RMDs may result in a penalty tax of 50% of the required distribution amount.

 

Consult with your CPA® and/or Certified Financial Plannerâ„¢ for additional help analyzing your specific situation. You should also revisit your personal withdrawal strategy each year, as your situation, tax laws, and market performance may change.

 

¹ Asset allocation does not assure a profit or protect against a loss. Investing in stocks involves risks, including loss of principal.

 

² This example is hypothetical and not intended as investment advice. Your results will vary.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-9-27 Protect Disabled Children With A Special Needs Trust

A PRIMER FOR NEW INVESTORS

 

New to mutual fund investing? This primer on fund categories may help you get started. With thousands of mutual funds¹ available today, selecting the most suitable ones for your portfolio can be tricky business. Overwhelmed by the sheer number of funds, new investors understandably may be confused.

 

Included below is a summary of a number of common mutual fund categories. Once you have some understanding of the different fund categories -- which determine the kinds of securities that fund managers select for their funds -- the industry's seemingly endless differentiation may start to become clearer. You -- and your Certified Financial Planner™ -- can then devise a mutual fund investment strategy that will work for you, bearing in mind your time horizon, risk tolerance, and ability to withstand fluctuations in the value of your portfolio.

 

● Global and international fundscan help diversify your assets into a wide array of foreign stocks and bonds. The difference between the two groups is that global funds include a mix of U.S. and foreign stocks, whereas international funds invest exclusively overseas. Within the two fund groups, there are also regional funds and specific-country funds. Global and international funds vary widely from lower-risk funds that invest in established markets to higher-risk emerging market funds. Be aware that international securities can carry additional risks (such as higher taxation, less liquidity, political problems, and currency fluctuations) that may not affect domestic securities.

 

● Aggressive growth fundsare, as their name suggests, among the most aggressive equity funds. Aimed at maximizing capital gains, these funds invest in companies with the potential for rapid growth (such as companies in developing industries, small but fast-moving companies, or companies that have fallen on hard times but appear due for a turnaround). These funds can be very volatile in the short term, but in the long run they may offer the potential for above-average capital appreciation.

 

● Growth fundsalso strive for capital appreciation by investing in companies that are positioned for strong earnings growth. In general, they are less risky than aggressive growth funds because they normally invest in well-established companies. They may entail less volatility than aggressive growth funds, but also less potential for capital appreciation.

 

● Growth and income fundsstrive for both dividend income and capital appreciation by investing in companies with solid records of dividend payments and capital gains. Some growth and income funds emphasize growth while others emphasize income. Growth and income funds may be less risky and less volatile than pure growth funds, but may also offer less potential for capital appreciation.

 

● Sector fundsconcentrate on one industry (such as technology, financial services, or consumer goods) or focus on certain commodities (such as gold, gas, or oil). Because they are less diversified than the broader market and often more volatile, they are more appropriate for experienced investors willing to pay close attention to the market,

 

● Balanced fundscombine stocks and bonds in a single portfolio. They are more conservative and usually invest in blue-chip stocks and high-quality taxable bonds. They may potentially hold up better in rough markets, because when stocks fall, bonds tend to increase in value. Because they offer a limited amount of diversification, balanced funds are often suitable for people with a small amount of cash to invest.

 

● Bond fundscan be divided into four broad categories: tax exempt, taxable, high quality, and high yield. Within these categories, funds are also segmented by maturities, type of issuer, and credit quality of bonds in which they invest.

 

● Allocation/lifestyle and target-date fundsmay be an option for investors looking to simplify their choices. Allocation or lifestyle funds invest in a mix of stocks, bonds, and money market funds. That mix changes over time as you approach the target date, typically your expected date of retirement. For example, a 2040 fund might feature a mix of stocks and bonds that gets progressively more conservative (for example, with more bonds) as you approach year 2040.²

 

You may be naturally more conservative or growth-oriented, and have your own unique circumstances. Consequently, your Certified Financial Planner™ will ask many questions about your goals and then create a customized allocation designed to accomplish them. He or she will then monitor your progress and make adjustments according to your changing lifestyle, fluctuations in the market, and amendments to tax laws.

 

¹Investing in mutual funds involves risk, including loss of principal. Mutual funds are offered and sold by prospectus only. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. For more complete information about any mutual fund, including risks, charges, and expenses, please contact your financial professional to obtain a prospectus. The prospectus contains this and other information. Read it carefully before you invest.

² Asset allocation does not ensure a profit or protect against a loss in a declining market.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-7-19 Life Insurance and your Estate Plan

LIFE INSURANCE AND YOUR ESTATE PLAN

 

Managed wisely, life insurance can be an effective component of an estate planning strategy.¹ Under the IRS's Unlimited Marital Deduction provision, assets may pass free of estate tax from one spouse to another -- provided he or she is a U.S. citizen -- no matter what the amount. But if your beneficiary is someone other than your spouse (a child for example), he or she could inherit a hefty estate tax bill. While the IRS allows up to $5.34 million to pass to heirs free from federal estate tax in 2014, any amount above that could be taxed at a rate of up to 40%.

 

With an exemption that sizeable, you may not be concerned about estate taxes. But if much of your estate is illiquid -- that is, if much of it is held in real estate or a business -- then you may want to consider setting aside assets held outside of your estate to cover the estate tax bill. Life insurance may help you to pay estate taxes while preserving more of your wealth for future generations.

 

The Tax Facts

 

As long as you don't own the life insurance policy and did not retain control over it within the last three years of your life, the proceeds generally will not be treated as part of your estate and therefore will not be subject to estate tax.

 

One strategy for capitalizing on the tax benefits of life insurance is to establish an Irrevocable Life Insurance Trust (ILIT), which serves as both owner and beneficiary of a life insurance policy. A trust can help keep the proceeds of the policy out of your estate, thus avoiding federal estate tax. In addition, when setting up the trust you can name one or several beneficiaries, or trustees. Trustees can use the proceeds of the policy to pay estate taxes and estate settlement costs, while the remaining monies, if any, can be distributed to beneficiaries free of income tax.

 

If you already own a life insurance policy that that is included in your estate, you may be able to gift the policy to a beneficiary. If, however, the cash value of the policy on the date of transfer is more than the $14,000 gift exclusion allowed per individual, per year (in 2014), the transfer may be subject to gift tax. It may be possible to circumvent the gift tax by naming more than one beneficiary. This would allow you to potentially transfer up to $14,000 per beneficiary without incurring gift taxes.

 

Devise a Plan That's Right for You

 

Life insurance is just one of the many tools that could be used to help you pass your estate on to your loved ones effectively. Your Certified Financial Planner™, CPA®, and/or estate planning attorney can help you evaluate your situation and assess which tools and strategies may be appropriate for your needs.

 

This article offers only an outline; it is not a definitive guide to all possible consequences and implications of any specific trust option. For this reason, be sure to seek advice from knowledgeable legal, tax, and financial professionals.

 

¹ Life insurance policies are subject to substantial fees and charges. Death benefit guarantees are subject to the claims-paying ability of the issuing life insurance company. Loans will reduce the policy's death benefit and cash surrender value, and have tax consequences if the policy lapses.
 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-7-5 Women, Wealth and Legacy Planning

WOMEN, WEALTH AND LEGACY PLANNING

 

Whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect their own as well as their beneficiaries' financial security, women play a central role in establishing and preserving family wealth. Consider these statistics:¹

 

● Women now control more than half of the investment wealth in the United States.

● 48% of estates worth more than $5 million are controlled by women, compared with 35% controlled by men.

● Some estimate that by 2030, women will control as much as two-thirds of the nation's wealth.

 

These and other trends magnify the need for women to be involved, informed, and comfortable with their role as guardians of family wealth. Active participation in wealth management can strengthen women's commitment to protect and grow their assets with the goal of leaving a legacy for their children, their community, and beyond.

 

Best Practices in Legacy Planning

 

The following strategies may help assure the smooth transfer of your wealth -- and your values surrounding wealth -- to the next generation.

 

Education leads to confidence.Attaining financial security for you and your heirs typically requires you to accept responsibility for the management of significant investment assets. Whether you are single, married, or a surviving widow, it is in your best interest to obtain as much education as possible about wealth planning, investments, and related matters. Even if you are not directly responsible for making important financial decisions, it is vital to have knowledge in these areas in order to communicate effectively with professional advisors charged with these duties.

 

Professionals offer objective, qualified services.Relying on professional advice as opposed to family and friends is extremely important when making decisions affecting the accumulation, preservation, and distribution of wealth. What should you expect from a qualified professional? A good Certified Financial Planner™ -- in a team with other professionals, such as attorneys and accountants -- should offer guidance and services in most areas of wealth management, including estate planning, retirement planning, insurance needs assessment, and college planning. On a more personal note, a Certified Financial Planner™ should work closely with you to:

● Identify areas requiring special assistance, such as creating trusts.

● Minimize taxes and planning costs.

● Develop and implement a personalized wealth management plan.

● Review your plan periodically and suggest changes when needed.

 

Children should learn about the responsibilities of wealth.Wealth is a gift that opens doors of opportunity not only for you, but also for your children, their children, and generations to come. Yet wealth can be a weighty responsibility that takes time to manage, maintain, and preserve. If you are a parent, you are no doubt concerned about the effects of wealth on your children's values and how the money lessons you pass on to them will resonate as they mature to adulthood. Your Certified Financial Planner™ should be willing to work with you to educate your children and guide them towards their own success.

 

Family values should be held in the same high regard as family wealth.Family values -- those traits, beliefs, goals, and morals that are shared by members of a family group -- define a family's character as much as dollar signs measure a family's wealth. By holding shared values in high regard and setting an example of commitment to financial responsibility, philanthropy, and volunteerism for the younger generation, you will enrich your family's legacy for generations to come.

 

A Woman's Worth

 

As stewards of the family legacy, women are in a unique and influential position. They are holders of great wealth as well as keepers of the family's moral and philanthropic vision. There are many financial, accounting, legal, and business tools to assist women in implementing a plan of action. Contact a Certified Financial Planner™ for guidance in mapping out a legacy planning strategy unique to your situation.

 

This information is not intended as legal or tax advice and should not be treated as such. You should contact your Certified Financial Planner™, attorney and CPA® to discuss your personal situation.

 

¹ The American College, The Wealth Channel Magazine, "Women and Money: Research reveals unmet opportunities and risks," by Mary Quist-Newins, CLU©, ChFC©, CFP®©, Director, State Farm©Center for Women and Financial Services, Spring 2010.


 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-6-23 When the Shoe Drops

WHEN THE SHOE DROPS

 

This is both an exhilarating and nervous time for investors. They are excited about the record-breaking market performance. Since September 2011, the gains have been relatively steady without a 10% pullback. However, this is twice as long as usual. Many investment strategists expect the "shoe to drop" on a market downturn. Should we sell now to lock in gains, or hang in for the long haul?

 

A 10% pullback does not necessarily mean that the market is in trouble. In fact, it indicates a healthy financial market. If the market only went up and never went down, we would probably not receive the higher returns associated with the market because we would be taking no risk. We don't know what will trigger the next pullback – it could be a global conflict, or it could simply be hedge fund managers cashing in some of their holdings to lock in short-term gains.

 

BENEFITS OF A GLOBALLY-DIVERSIFIED PORTFOLIO

 

There is one important distinction to keep in mind -- when money managers forecast a 10% pullback, they are generally talking about major indices like the Dow Jones Industrial Average (DJIA). However, the DJIA reports on only thirty companies, all of which fall into one asset class (large company growth). It also contains no bonds.

 

This is very different from the globally-diversified portfolio that many Certified Financial Planners™ would recommend. A diversified account could hold over 9,000 different company stocks, represent fifteen asset classes, and have a significant proportion of bonds. Because it is just the opposite of "putting all your eggs into one basket," this strategy helps to remove some of the volatility of the market. The inclusion of bonds gives important downside protection because bond values typically go up when stocks go down.

 

What this means bottom line is that if the DJIA goes down 10%, a globally-diversified portfolio will go down much less. Then, when the market recovers from the pullback, a diversified approach can bounce back much quicker because it didn't go down much in the first place.

 

It may be counter-intuitive, but periodic pullbacks in the market can enhance long-term returns. In order to have good performance in an investment, you want to both buy low and sell high. Selling high happens when we rebalance our clients' accounts quarterly. Usually in a three-month period, a few asset classes will do well and jump up in value. At the end of the quarter, we sell some of these high-flyers in order to lock in gains. However, to buy really low we need pullbacks from time to time in order to scoop up stocks at a bargain.

 

BENEFITS OF INVESTING FOR THE LONG-TERM

 

Many hedge fund managers have been burned by the market in the last couple of years because they made large bets on short-term returns. Some hedge fund managers bet on interest rates going up sharply, which did not happen. They also bet on strong short-term growth in Japan and in emerging markets, (like China, India and Russia) which also did not materialize. Short-term trends are apt to be remarkably unpredictable.

 

By comparison, average investors like you and me benefit by staying focused on long-term market performance. Fortunately, gains from long-term investing are much more reliable than from chasing short-term trends. An investment strategy like Modern Portfolio Theory gained its popularity and success precisely because it provided more consistent returns and offered more downside protection for long-term investors.

 

An important benefit of having a long-term view is that the speed advantage of high-frequency traders becomes largely irrelevant. They use high-speed fiber optic cables that feed directly into their computers so they can make trades milliseconds ahead of other investors. This gives them additional tiny gains on thousands of trades per day, but this advantage comes mostly out of the pockets of day traders who try to compete against them. Long-term investors build value over a three to twenty-five year time horizon, and the milliseconds have little impact.

 

WHEN THE SHOE DROPS, DON'T RUN

 

Down markets are a normal part of the investment process. Since 1926 we have seen down markets 27% of the time.¹ Another downturn will happen again. When that happens, don't let yourself be affected by hasty, emotional decisions. When the shoe drops, the best course of action may be to stick to your long-term plan.

 

¹ There were 24 down calendar years out of the 88 total calendar years tracked by the S&P 500.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-6-7 Dividend-Paying Stocks For Income

DIVIDEND-PAYING STOCKS FOR INCOME

 

Income-minded investors seeking protection from volatile market conditions may find that dividend-paying stocks offer an attractive mix of features and warrant a place in their equity portfolios.

 

The appeal is simple: Dividend-paying stocks can provide investors with tangible returns on a regular basis regardless of market conditions. Investors experienced this first-hand during the Great Recession of 2008 and 2009. While stock share prices fell dramatically during this period, dividends tended to stay relatively stable. Investors (especially retirees) who depended on dividends to pay their expenses welcomed the stability of dividends during this turbulent period.

 

Note that dividends can be increased, decreased, and/or eliminated at any time without prior notice.

 

The Potential Benefits of Dividend-Paying Stocks

 

If you own stock in a company that has announced it will be issuing a dividend or if you are proactively considering adding an allocation to dividend-paying stocks, history provides compelling evidence of the potential long-term benefits of dividends and their reinvestment:

 

● A sign of corporate financial health.Dividend payouts are often seen as a sign of a company's financial health and its management's confidence in future cash flow. Dividends also communicate a positive message to investors who perceive a long-term dividend as a sign of corporate maturity and strength.

 

● A key driver of total return.There are several factors that may contribute to the superior total return of dividend-paying stocks over the long term. One of them is dividend reinvestment. The longer the period in which dividends are reinvested, the greater the spread between price return (which is based solely on the share price) and dividend reinvested total return.

 

● Potentially stronger returns, lower volatility.Dividends may help to mitigate portfolio losses when stock prices decline, and over long time horizons, stocks with a history of increasing their dividend each year have also produced higher returns with less risk than non-dividend-paying stocks. Since 1990, the S&P 500 Dividend Aristocrats -- those stocks within the S&P 500 that have increased their dividends each year for at least 25 consecutive years -- produced annualized returns of 12.1% vs. 9.5% for the S&P 500 overall, with less volatility (13.8% vs. 14.9%, respectively).¹

 

If you are considering adding dividend-paying stocks to your investment mix, keep the following factors in mind:

 

● Dividend-paying stocks may help diversify an income-generating portfolio.Income-oriented investors may want to diversify potential sources of income within their portfolios. Given current realities present in the bond market, stocks with above-average dividend yields may compare favorably with bonds and may act as a buffer should conditions turn negative within the bond market.

 

● Dividends benefit from continued favorable tax treatment.Under current tax law, the tax rate for qualified dividends is capped at 15% for most taxpayers. The rate rises to 20% for single taxpayers who earn more than $406,750 in 2014 and for married couples filing a joint tax return who earn more than $457,600.

Note that these rates do not include the 3.8% Medicare surtax on investment income. However, the Medicare surtax in only applicable for higher-income taxpayers (generally, those with incomes over $250,000 if filing jointly or $200,000 if single).

 

Please note that past dividends are not a guarantee of future dividends. Stock markets are volatile and can decline significantly in response to adverse developments related to the issuer, or by changes in politics, regulations, financial markets, or the economy. Different parts of the market can react differently to these factors. The value of an individual security or particular type of security can be more volatile than, and can perform differently from, the market as a whole. Therefore, companies that offer dividend-paying stocks cannot guarantee that they will always be able to pay or increase their dividend payments.

 

Your individual tax situation may affect your suitability for dividend strategies. The information in this communication is not intended as tax advice and should not be treated as such. Each individual's tax circumstance is different. You should contact your CPA® or Certified Financial Planner™ to discuss your personal situation.

 

 

¹ Source: Standard & Poor's. For the period January 1, 1990, through December 31, 2013 (earliest data available). Investing in stocks involves risks, including loss of principal. Volatility is measured by standard deviation. Past performance is no guarantee of future results. Indexes are unmanaged, statistical composites, and investors cannot invest directly in any index. The returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause the actual performance to be lower than the performance shown.
 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-5-17 Stretching Your IRA To Future Generations

STRETCHING YOUR IRA TO FUTURE GENERATIONS

 

You probably understand that an IRA can be an effective way to save for retirement. However, you should know that it can be an effective estate-planning tool as well. It can allow you to transfer wealth to future generations while reducing, deferring, or even eliminating income taxes on your retirement savings. Transferring wealth with a Beneficiary IRA could be an ideal solution for you.

 

Employing the stretch technique by naming a beneficiary could provide significantly more long-term benefits than simply allowing the account balance to be paid out to your estate or living trust as a taxable lump-sum distribution. If you're unlikely to deplete your IRA assets during retirement, advise your loved ones to create a Beneficiary IRA after you're gone. By doing so, you could help build long-term financial security for them.

 

A Beneficiary IRA is a traditional IRA that passes from the account owner to a younger beneficiary at the time of the account owner's death. Since the younger beneficiary has a longer life expectancy than the original IRA owner, he or she will be able to stretch the life of the IRA by receiving smaller Required Minimum Distributions (RMDs) each year over his or her life span. More money can then remain in the IRA and potentially grow tax-deferred for a longer period of time.

 

Creating a Beneficiary IRA has no effect on the account owner's minimum distribution requirements, which continue to be based on his or her life expectancy. Once the account owners dies, however, beneficiaries begin taking RMDs based on their own life expectancies. Whereas the owner of a Beneficiary IRA must begin receiving RMDs after reaching age 70 ½, beneficiaries of a Beneficiary IRA must begin receiving annual RMDs no matter how old they are. In either scenario, distributions are taxable to the payee at then-current income tax rates.

 

Beneficiaries also have the right to receive the full value of their inherited IRA assets by the end of the fifth year following the year of the account owner's death. However, by opting to take only the required minimum amount instead, a beneficiary can theoretically stretch the IRA – and tax-deferred growth – throughout his or her lifetime.

 

Consider the implications

 

● The ability to name new beneficiaries after RMDs have begun means that you can include a child in your Beneficiary IRA strategy regardless of when the child was born.

 

● The ability to change beneficiary designations after the account owner's death means that one beneficiary may choose to disclaim his or her own beneficiary status so that more assets pass to another beneficiary. For example, if an account owner names his son as the primary beneficiary and his grandson as the secondary beneficiary, the son could remove himself as a beneficiary and allow the entire IRA to pass to the grandson. RMDs would then be based on the grandson's life expectancy, not on the son's life expectancy, as would have been the case if the son remained a beneficiary. When there is more than one beneficiary, RMDs are calculated using the life expectancy of the oldest beneficiary.

 

● The ability of beneficiaries to base RMDs on their own life expectancy means that the money you accumulate in your IRA and leave to heirs has the potential to last longer and produce more wealth for younger generations.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-5-5 Know Your Protections And Risks When Banking Online

KNOW YOUR PROTECTIONS AND RISKS WHEN BANKING ONLINE

 

The recent revelations about the Heartbleed virus have raised concerns about the security of online transactions and banking. Heartbleed is a bug in some versions of OpenSSL, a set of software tools used widely across the Web for security. This bug may reveal your name, passwords and other private information, and has affected many financial institutions.

 

As Americans increasingly migrate toward conducting banking and other financial transactions over the Internet, the threat of falling victim to ever-more sophisticated cyber-crimes continues to increase. Financial services companies are keenly aware of the potential security risks posed by online money transfer. That is why the industry as a whole has developed a series of standard security protocols designed to ensure that customers' assets and personal information are kept safe.

 

Following is a list of common security features offered by most banks and financial institutions. You can compare these measures with what your own bank, credit card company, and other financial vendors have in place.

 

Anti-malware software.Anti-malware is a term commonly used to describe various software products used to prevent, detect, block and remove malicious software products that are intended to damage or disable computers or computer systems. Anti-malware software may also be referred to as anti-virus or anti-spyware.

 

Transaction monitoring/anomaly detection.Network monitoring software has been in use by financial institutions for a number of years. Similar to the way in which the credit card industry detects and blocks fraudulent credit card transactions, systems are now available to monitor online banking activity for suspicious funds transfers. For instance, too many incorrect login attempts will signal the system to lock a user out of their account until positive account verification can be confirmed. Transaction amounts (specifically withdrawals) that fall outside the customer's normal or pre-established limits are also scrutinized.

 

Multilayered authentication.Many online banking/financial systems now require multiple layers of user identification, or authentication, that only those authorized can provide. For instance, some authentication protocols verify that the computer or smart phone the customer is using to access the bank's website. If the device does not match the bank's records, additional authentication measures, such as one or more challenge questions (your mother's maiden name, for example), will be presented to the customer. Similarly, a number of institutions are requiring "out of band" authentication, which requires a transaction initiated via one delivery channel (e.g., Internet) to be re-authenticated via a different channel (e.g., telephone) in order for the transaction to be completed.

 

Firewalls.Firewalls are software- or hardware-based security systems that create a secure barrier between your bank's internal network, where your information is stored, and the unsecured Internet. The data "traffic" flowing in and out of the bank's network is monitored and analyzed to determine its legitimacy.

 

Encryption.Encryption scrambles information being transmitted between your device and the bank's network into a code that is virtually impossible to decipher, thereby protecting against unauthorized access. Many financial institutions now use 128-bit encryption, an advanced encryption technology.

 

Customer Education: The Linchpin of Any Security Program

 

In the final analysis, even the most sophisticated security measures are no substitute for well-informed customers. Toward that end the Federal Financial Institutions Examination Council (FFIEC), a body of the federal government made up of several U.S. financial regulatory agencies, issued guidance suggesting that, at a minimum, a financial institution's customer education efforts should include¹:

 

● An explanation of protections provided, and not provided, to account holders relative to electronic funds transfers.

● An explanation of under what, if any, circumstances and through what means the institution may contact a customer on an unsolicited basis and request confidential account-related credentials.

● A list of risk-control measures that customers may consider implementing to mitigate their own risk.

● A list of appropriate contacts for customers to use if they notice suspicious account activity or experience security-related events.

 

If you visited a website that uses a vulnerable version of OpenSSL during the last two years, your personal information may be compromised. You can use this tool: http://safeweb.norton.com/heartbleedto check if a particular website is currently impacted.
 

¹ The Federal Financial Institutions Examination Council (FFIEC), "FFIEC Supplement to Authentication in an Internet Banking Environment,"June 29, 2011.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-4-19 How To Manage An Inheritance

HOW TO MANAGE AN INHERITANCE

 

If you have recently received a bequest or are anticipating inheriting sizeable assets, here are some tips to help you manage those assets. Over half of American retirees expect to leave an inheritance for their loved ones, with an average value of more than $176,000.¹ Now is the time to plan.

 

• Wait and develop a strategy.Start by parking the money in the bank and take an inventory of your financial life. Are you on track for retirement? Do you have adequate insurance? Do you have significant debt? Are you supporting a family? If you tend to drag your feet on this type of planning, working with a Certified Financial Planner™ can help you become motivated to move forward.

 

• Pay down your high-interest debt.Near the top of your priority list should be eliminating consumer debt, especially high-rate credit card debt. But think twice about paying off your mortgage, unless owning your home outright is an important goal for you. Your mortgage interest rate is likely low, and the money may be better used elsewhere. The same goes for paying off college loans at low interest rates.

 

• Save, save, save. Next step should be to turn to your savings, which should include funding an emergency fund of about six months' living expenses, putting aside money for retirement, and setting up accounts for your childrens' education and other life expenses.

 

• Do not rush to spend.Ideally, the money should bring you closer to financial independence, but many heirs do not know how to handle a windfall. After a bout of uncontrolled spending, many end up no better off than they were before. Take small steps when making your decisions. Instead of quitting your job right away, consider working part-time. If thinking about purchasing a luxury sports car, try renting one first. The goal is to avoid making irrational decisions you might later regret.

 

• Do your research.If you have inherited a traditional IRA, research the options available before making changes. If you are not a spouse, you cannot roll the inherited IRA into your own. A Beneficiary IRA may be your best choice for continuing growth and deferring taxes. Non-spouses are required to take taxable minimum distributions every year based on life expectancy. Instead of treating the distribution as an annual windfall to be spent, plan to integrate it into your long-term strategy.

 

• Find a suitable long-term investment strategy. Constructing a portfolio that generates passive income is the slow-and-steady approach that will lead to financial independence. To achieve stability and income growth, you will need to mix stocks and fixed-income investments, but do not speculate by sinking it all into volatile equities or go too conservative by keeping it too heavily invested in cash or fixed-income securities. The point is to make the money work for you without unnecessary risk.

 

• Hire an expert.Managing an inheritance gets easier with professional financial help. Consulting a Certified Financial Planner™ will help you maximize your current plan or help you develop a plan if you do not have one. If you know you will inherit, you can begin planning ahead of time, but if the inheritance comes as a surprise, a professional can help you understand all your options. Be sure to get an objective opinion that is based on your entire financial picture and a thorough understanding of your goals.

 

This communication is not intended to be legal and/or tax advice and should not be treated as such. Each individual's legal and/or tax situation is different. You should contact your professional advisors to discuss your personal situation.

 

¹ HSBC, "The Future of Retirement: Life after work?" December 2013.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-4-5 How To Avoid Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was originally created as a fallback tax for wealthy taxpayers who avoided regular taxes by claiming many exemptions and deductibles. Now, however, more individuals are finding themselves subject to the AMT. The mechanics of the AMT are complex. But a general understanding of how the tax works can help you avoid it and even use it to your advantage.

 

What Triggers the AMT?

 

The AMT truly functions as an "alternative" tax system. It has its own set of rates and rules for deductions, which are more restrictive than the regular rules. It operates in parallel with the regular income tax system in that if you are already paying at least as much under the "regular" income tax as you would under AMT, you do not have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying the Alternative Minimum Tax.

 

The AMT can be triggered by a number of different variables. Certain circumstances and tax items are likely to trigger the AMT, including the following:

 

● Your gross income is $100,000 or higher.

● You have large numbers of personal exemptions.

● You have significant itemized deductions for state and local taxes, home equity loan interest, deductible medical expenses, or other miscellaneous deductions.

● You exercised incentive stock options (ISOs) during the year.

● You had a large capital gain.

● You own a business, rental properties, partnership interests, or S corporation stock.

 

To find out if you are subject to the AMT, fill out the worksheets provided with the instructions to Form 1040 or complete Form 6251, Alternative Minimum Tax -- Individuals.

 

AMT rates start at 26%, rising to 28% at higher income levels. This compares with regular federal tax rates, which start at 10% and step up to 39.6%. Although the AMT rates may appear to cap out at a lower rate than regular taxes, the AMT calculation allows significantly fewer deductions, making for a potentially bigger bottom-line tax bite.

 

Unlike regular taxes, you cannot claim exemptions for yourself or other dependents, nor may you claim the standard deduction. You also cannot deduct state and local tax, property tax, and a number of other itemized deductions, including your home-equity loan interest, if the loan proceeds are not used for home improvements. Accordingly, the more exemptions and deductions you normally claim, the more likely it is that you will have an AMT liability.

 

Avoiding the AMT

 

Because large one-time gains and big deductions that trigger the AMT are sometimes controllable, you may be able to avoid or minimize the impact of the AMT by planning ahead. Here are some practical suggestions.

 

Time your capital gains.You may be able to delay an asset sale until after the end of the year, or spread a gain over a number of years by using an installment sale. If you are looking to liquidate an investment with a long-term gain, you should review your AMT consequences and determine what impact such a sale might have.

Time your deductible expenses.When possible, time payments of state and local taxes, home-equity loan interest (if the loan proceeds are not used for home improvements), and other miscellaneous itemized deductions to fall in years when you would not face the AMT. Since they are not AMT deductible, they will go unused in a year when you pay the AMT. The same holds true for medical deductions, which face stricter deduction rules for the AMT.

Look before you exercise stock options.Exercising Incentive Stock Options (ISOs) is a red flag for triggering the AMT. The AMT on ISO proceeds can be significant. Because ISO tax issues are complex, you should consult with your tax professional before exercising ISOs.

 

This article is not intended to be tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your CPA® to discuss your personal situation.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-3-22 Starting A New Business In Retirement

For many people, "retirement" is just another word for career change. It can represent the opportunity to pursue a passion you have kept on the shelf for many years. Perhaps it means going into business for yourself. If you are considering this direction, here are some things to consider.
 

As a result of lengthening life expectancies and dwindling pensions, a growing number of retirees are looking to start a new business as a way to supplement income and provide more retirement security. Starting a business can be beneficial to be an older entrepreneur in a number of ways:

 

● Start-up funding may be easier to come by for seniors, who can draw from personal savings and a lifetime of business and professional contacts.

 

● Senior start-ups may also be looked on more favorably by lenders, who often associate older entrepreneurs with a lower risk of default.

 

● Because they can often rely on other sources for current income, they are in a better position to take greater entrepreneurial risks.

 

If you are thinking about venturing into a new business in your later years, there are several considerations you should bear in mind before taking the leap.

 

Start-ups can be physically and emotionally draining for a retiree. Seniors tend to work fewer hours and take more vacations than their younger counterparts. Ask yourself: Are you willing or able to work the long hours that may be required in a fledgling business? There is also the matter of elder health concerns. For seniors, health problems can come at any time. Even if you are in top shape, you should factor in contingencies for unexpected health issues for yourself and your spouse.

 

Then there is financial vulnerability. Seniors also rely much more on personal investments to supply a portion of their income. For these reasons, seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging personal assets such as a home as loan collateral.

 

Successful post-retirement start-up tips:

 

Go back to school.If you have never run a business before, it may be helpful to take a few classes at a university or community college. You will learn valuable information on legal requirements, bookkeeping methods, and other key considerations.

 

Build on already established contacts and expertise.Seniors have a distinct advantage over younger entrepreneurs in their experience and long-established business network, which can give them a competitive advantage in virtually any business.

 

Interview other business owners.Talk to owners of similar businesses and scope out the market for such products or services in your area. Then, take the time to draft a formal business plan.

 

Start small.When starting up a new business in retirement, many begin with a small consultancy and gradually work their way into a full-blown business. This will give you time to assess whether you are willing or able to take on another full-time career.

 

Do not bet the farm.If you are retired, you probably rely on personal investments for a portion of your income. Consider your income needs before investing a portion of your nest egg in a new business and think twice before taking on any personal debt.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-3-8 Inheriting Assets From A 401(k)

Inheriting money from a deceased person's 401(k), 403(b), or 457 plan? Your options in managing those assets depend on whether the deceased was your spouse and whether he or she had already begun taking Required Minimum Distributions upon reaching age 70½. It is important to pay attention to IRS rules that govern this type of bequest.

 

Considerations for Spouses

 

Spouses have three options when it comes to inheriting assets from a qualified defined contribution retirement plan:

 

● Keep it in the plan.

● Take the assets as a lump sum.

● Transfer the assets into their own IRA.

 

As long as your spouse's plan permits, you may keep the assets in the plan as a "beneficiary account" and continue to enjoy its tax-deferred status. If your spouse had already begun taking Required Minimum Distributions, you must continue to take them at least at the same rate. If your spouse had not yet begun taking RMDs, you can delay taking them until the year your spouse would have turned age 70½.

 

If you take a lump-sum distribution, you will be required to pay income taxes on the full amount. Twenty percent of the amount due to you will be withheld automatically and sent to the IRS for taxes.

 

If you transfer the assets into an IRA (called an "IRA Rollover"), you are not required to pay federal estate or income taxes if the assets are left intact within the estate. After reaching age 70½, you must begin RMDs based on your life expectancy. If you have already begun taking RMDs, you must take your annual distribution before transferring the assets into your account.

 

This last option is likely to give you the most flexibility and control. Having the assets in your own IRA gives you more direct and rapid access to the account (rather than going through your deceased spouse's former employer), and the costs within an IRA are often significantly lower than a 401(k), which results in better performance.

 

Considerations for Non-spouses

 

Non-spouses also have three options:

 

● Keep it in the plan.

● Take the assets as a lump sum.

● Roll over the assets into a Beneficiary IRA.

 

Your option to keep it in the plan is dependent on plan guidelines: Some will allow you to keep the account in the plan; some will require you to withdraw the assets. If the deceased had already begun taking RMDs, you must continue taking them at the same rate or faster. If the deceased had not yet begun taking RMDs, you must begin taking distributions by the end of the year after the person died.

 

As with the spousal scenario, taking a lump-sum distribution will necessitate the payment of income taxes on the full amount. Twenty percent of the amount due to you will be withheld automatically and sent to the IRS.

 

Rolling the inherited IRA into a Beneficiary IRA may be the best option for many heirs. Ironically, many heirs are not told that they have this choice. A Beneficiary IRA allows the heir to transfer the IRA with no taxes, and allows the IRA to continue to grow tax-deferred for the heir's life expectancy. You will have to take annual Required Minimum Distributions even if you are younger than 70 ½, but if you are young, they can be relatively small (1 to 2% per year) and the rest can can continue to stay in the account and grow tax-deferred. If you are opening a Beneficiary IRA, the account must be titled in a specific way, with the name of the original participant first, with you listed as the beneficiary.

 

Because the rules are complicated and the consequences of a seemingly minor error can be thousands of dollars in unnecessary taxes, consult with a Certified Financial Planner™ to answer any questions you may have before submitting the paperwork.

 

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-2-15 Short Memories And The Risk Of Investing

SHORT MEMORIES AND THE RISKS OF INVESTING

 

As we have seen in the last few weeks, the stock market can experience short-term volatility. After several weeks of downturn, the Dow Jones Industrial Average soared to consecutive triple-digit gains, the largest daily advances of the year. According to the Wall Street Journal 2/10/2014, portfolio managers were confident that long-term growth would override any short-term concerns, and were encouraged that the temporary pull-back could motivate the Federal Reserve Bank to keep interest rates low for a longer period of time.

 

The WSJ also noted that most of the recent sellers have been short-term traders using program selling to lock in the gains from December's strong performance. For long-term investors, it rarely makes sense to sell during market downturns. Although it seems like the market performance has been a straight rise since March of 2009, you may be surprised to know that we had a 16% drop in the spring of 2010, two 20% plunges in the summer of 2011, and a 10% fall in the spring of 2012. After every one of these pull-backs the market returned to new highs. Because we have short memories, each downturn comes as an unexpected shock to most investors. The people who lose money in the long-term are those who panic and sell when the market turns down.

 

Investment risk comes in many forms, and each can affect how you pursue your financial goals. The key to dealing with investment risk is learning how to manage it. This three-step process will show you how.

 

Step One: Understand Risk

 

Fear of losing money is one reason people may choose conservative investments. Investment risk refers to the general risk of loss, and can be broken down into more specific classifications. Familiarizing yourself with the different kinds of risk is the first step in learning how to manage it within your portfolio.

 

 Risk comes in many forms, including:

 

Market risk: Also known as systematic risk, market risk is the likelihood that the value of a security will move in tandem with its overall market. For example, if the stock market is experiencing a decline, the stock mutual funds in your portfolio may decline as well. Or if bond prices are rising, the value of your bonds may also go up.

• Interest rate risk: Most often associated with fixed-income investments, this is the risk that the price of a bond or the price of a bond fund will fall with rising interest rates.

• Inflation risk: This is the risk that the value of your portfolio will be eroded by a decline in the purchasing power of your savings, as a result of inflation.

• Credit risk: This type of risk comes into play with bonds and bond funds. It refers to a bond issuer's ability to repay its debt as promised when the bond matures.

 

Step Two: Diversify¹

 

The process of diversification, spreading your money among several different investments and investment classes, is used specifically to help minimize market risk in a portfolio. Because the goal is to invest in many different securities, mutual funds or exchange-traded funds are good vehicles to implement diversification.

 

Diversified portfolios are designed to take advantage of good markets and bad markets. "Growth" components use the positive momentum of the market to capture gains. The "value" component of the portfolio looks for bargains and welcomes opportunities when the market is down, like shopping at Macy's when a sale is going on.

 

 Dealing With the Risks of Investing

 

In a diversified portfolio, asset classes complement each other (i.e. when one goes down, the other tends to go up, and vice versa), further reducing risk. For example, when stocks are particularly hard hit due to changing conditions, bonds may increase in value. That may be because bond total returns can be tied more to income (which can cushion a portfolio) than price changes.

 

Step Three: Match Investments to Goals

 

Before you can decide what types of investments are appropriate from a risk perspective, you need to evaluate your savings goals. Is your goal preservation of principal, generating income for current expenses, or building the value of your principal over and above inflation? How you answer this will enable you and your Certified Financial Planner™ to build a customized portfolio for the long-term. By the end of this year, few of us will recall what happened in January. Similar to relationships and vacations, we tend to remember all the good parts.

 

¹ Diversification does not ensure a profit or protect against a loss.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-2-1 Regarding The Recent Market Downturn

REGARDING THE RECENT MARKET DOWNTURN

 

The U.S. market experienced a downturn last week, with the Standard and Poors 500 index down 3.1% since the beginning of January, and the Dow Jones Industrial Average down 4.2%. The media has jumped on this negative news and is stirring up fear about whether this represents the beginning of a bear market or another recession. Their assertions about "This time it's different" could not be farther from the truth.

 

To put things in perspective, the current downturn has occurred after U.S. stocks hit a record high following a 30% gain last year. The S&P 500 hit a record high of 1,848 on January 15. The markets have had a pretty good run since the great recession of 2008, and we know the market never goes up in a straight line. Periodic downturns are a normal part of the market, and are a reflection of how healthy markets work. Below is a table showing the average frequency of market pullbacks.

 

History of Dow Jones Industrial Average Decline

TYPE OF DECLINE

FREQUENCY

LAST OCCURRENCE

-10% or more

About once every year

October, 2011

-15% or more

About once every 2 year

October, 2011

-20% or more

About once every 3.5 years

March, 2009

Source: Capital Research & Management, Inc.

 

In general, Wall Street likes investors to trade as often as possible because it increases their revenue through trading charges that add up to about $100 billion each year. This is why they spend millions of dollars annually promoting strategies like stock picking and market timing that require investors to trade frequently. However, successful investors tend to be those who do not panic, trade only to rebalance their diversified portfolios, and keep their investment costs to a minimum. Those who followed this approach typically did well, even through the Great Recession.

 

The current correction is actually happening because the U.S. and global economies are getting stronger. In the U.S., companies are making good profits. The real estate market is doing well with the most housing starts in six years. Unemployment is down to 7%. Internationally, European countries are coming out of their recession and may experience a strong recovery similar to the U.S. rebound in 2009. The current negative blip in the market is not likely to affect these long-term prospects. The International Monetary Fund expects the U.S. economy to grow 2.8% in 2014, up from 1.9% in 2013. ¹

 

Ben Bernanke, the former chairman of the Federal Reserve Bank, determined that the improving health of the U.S. economy made it safe to scale back the economic stimulus. Last December, he reduced the monthly purchase of bonds from $85 billion to $75 billion. His successor, Janet Yellen, is likely to continue that process and taper back by another $10 billion this month. This will likely cause interest rates to return to normal levels, reaching perhaps 5% by 2016.

 

When interest rates increase, bond values tend to decline. This particularly affects bond mutual funds which have no maturity because they are a basket of various bonds. Bond fund that contain longer maturity bond funds are likely to decline the most. This will be an unwelcome surprise for those investors who panicked during the recession, sold all their stocks and put the money into long maturity bond funds. The upturn in U.S. interest rates means that long bonds have suddenly become one of the most risky investments. This is one reason why money is fleeing from long-maturity municipal bond funds and Ginnie Mae mutual funds that invest in long-maturity mortgage securities.

 

During the time when U.S. interest rates were declining, global assets moved to emerging market countries where they could receive a better rate of return. Now that U.S. interest rates are becoming more competitive, that money is returning to the U.S. This is one of the reasons that China's growth is slowing. The other reason is that China is attempting to curb corruption and avoid runaway growth by purposely slowing down its economy. Both events are normal and positive.

 

In the meantime, the pullback in the market presents a buying opportunity. A properly diversified portfolio has assets classes that take advantage of a booming market (growth strategies), and asset classes that do well when the market is down (value strategies). In the value strategy we want to buy when stocks are a bargain and sell after they grow. Over the long-term, value strategies tend to out-do growth strategies.

 

One of the characteristics of a globally-diversified portfolio is the ability to keep pace with the growth of the market when it is doing well, but to give additional downside protection when the market pulls back. It is during these times when diversification makes more sense than ever.

 

¹ Associated Press 1/24/2014

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-1-18 Avoiding Online Fraud

 

AVOIDING ONLINE FRAUD

 

Just in the last couple of weeks our family has received email viruses in the form of a PG&E bill, a delivery notice from DHL, and an Amazon purchase. All of these were fictitious and clicking on the links would have triggered a virus or unauthorized access to our computer. The revelations in the news about the hacking of accounts at Target, Costco and Neiman Marcus are probably just the tip of the iceberg.

 

As technology continues to evolve, so too have the skills of cyber-criminals, who have honed their ability to break through firewalls, stealing valuable personal data and funds. What steps can you take to better secure you valuable personal and financial data when banking or shopping online? Consider the following tips as important baseline precautions.

 

Be Safe When Connecting

 

Be careful how and where you use any online banking system.

● Never connect to the Internet through an unsecured, public, wireless network.

● Never access your account from a link. Links are easy to tamper with, especially if they are embedded in an email, text message, or online articles. Always go directly to the home page of the financial institution first, and navigate from there.

 

Protect Your Passwords

 

Choose and use your passwords carefully. Use at least eight characters and include a liberal mix of uppercase and lowercase letters, numbers and special symbols.

● Avoid using the same password for multiple accounts – doing so leaves you more vulnerable.

● Never use personally identifying information, such as the last four digits of your Social Security number, in a password or username.

● Be sure to change your passwords regularly and avoid reusing the same password and username on different websites.

● Never share passwords, PINs or other account-related information in response to an unsolicited request. If you did not initiate the communication, you should not provide any information.

 

Regularly Monitor Your Accounts

 

Check account activity and online statements often, instead of waiting for your monthly statement. If you notice a "red flag," contact your bank immediately. When a customer reports an unauthorized transaction within sixty days of the occurrence, the financial institution will typically cover the loss and take measures to protect the account.¹

 

Protect Your Equipment

 

Be sure your computers and mobile devices are equipped with up-to-date anti-virus and malware protection.

● Most computer operating systems have built-in security firewalls. Be sure yours is set at "medium" or higher.

● Exercise the same caution with your wireless home Internet connection. Without proper protection, there is nothing to protect anyone from gaining access to your computer files and personal account data. WPA encryption is considered the best type of wifi protection. WEP should be used only when WPA is not available.

 

Be Careful When Using Social Media

 

Facebook and Twitter are used by millions of people worldwide, but be sure to exercise caution when sharing personal information on these sites. Details such as your birth date, home address, or the names of schools you attended are frequently used by financial institutions to validate your identity and are therefore potentially useful to cyber-criminals. Always review the privacy policies for any social network you join so as to avoid unintended disclosure of information.

 

Shop On Secured Sites

 

If you shop online, be sure to use only websites and merchants that you trust and that protect your account information with industry-standard protocols. Look for secure transaction signs, such as a lock symbol in the lower right-hand corner of your browser, or "https" in the address bar.

 

With a healthy dose of caution and some old-fashioned common sense, you can safely use the Internet as a time-saving, convenient resource.

 

¹ Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, Section 1005.6

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2014-1-4 Is There Value In Value Investing?

 

IS THERE VALUE IN VALUE INVESTING?

 

As volatility in the stock market continues, some investors may be tempted to buy on the dips. Buying on the dips is a favorite strategy of experienced investors. However, when looking for investment bargains, it is important to avoid a value trap. Is a low price by itself a true measure of a value stock? If an investor plans to hold a stock for the long term, how can an investor gauge its future potential compared with the broader market?

 

Value Investing Defined

Value stocks are those that have fallen out of favor in the marketplace and are considered bargain priced compared with book value, replacement value, or liquidation value. Value fund managers typically invest only when they believe the underlying company has good fundamentals. Many value investors think that a majority of value stocks are created because investors overreact to negative events, which can include:

 

● Disappointing earnings.

● A negative outlook for the industry.

● A regulatory setback.

● Substantive litigation.

 

The idea behind value investing is that stocks of good companies will bounce back in time when a company overcomes a short-term obstacle and investors ultimately recognize fair value. But this recognition may take time or, in some instances, may never materialize. 

 

Comparative Analysis

Investors looking to avoid a value mistake may want to compare a stock's recent trend with a peer group or with a broad market index. Here are some other suggestions:

 

● Consider whether a stock has dropped more than the average stock in the S&P 500 during the past three months.

● Examine whether earnings estimates are being revised downward faster when compared with a peer group.

● Compare analyst estimates of future profit margins to historical margins. If expectations for future profits exceed past earnings, the company could end up disappointing investors.

 

Another technique for potentially avoiding a value mistake is to look for stocks paying dividends. Dividends historically have been seen as a sign of management's confidence in healthy cash flow over the long term, as well as an indicator that management's interests align with shareholders. Even if a stock price languishes for a period of time, a dividend provides an investor with something in the way of a return. Note that dividends are not guaranteed, and a company can reduce or eliminate a dividend at any time.

 

Perhaps the best strategy for avoiding a value mistake is to combine value stocks with growth stocks, international stocks, and other types of equities to pursue diversification. Although there are no guarantees, owning some of each could help to balance an equity portfolio over the long term.¹

 

¹ Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors. Investing in stocks involves risks, including loss of principal.
 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, (626-449-7783 This email address is being protected from spambots. You need JavaScript enabled to view it. ) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-11-26 Year-End Tax Planning

Year-End Planning to Help You Lower Your Tax Bill

 

As the end of the year draws near, the last thing anyone wants to think about is taxes.  However, if you are looking for ways to minimize your tax bill, there's no better time for tax planning than before year-end.  The sooner you start, the more efficiently you can manage your 2014 tax exposure. That's because there are a number of tax-smart strategies you can implement now that will reduce your tax bill, come April 15. With the higher rates put in place with the passage of the American Taxpayer Relief Act of 2012, being tax efficient is more important than ever.

 

Put Losses to Work

 

              If you expect to realize either short- or long-term capital gains, the IRS allows you to offset these gains with capital losses.  Short-term gains (gains on assets held less than a year) are taxed at ordinary income tax rates, which range from 10% to 39.6%, and can be offset with short-term losses.  Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20% and can be reduced by long-term capital losses.1  To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year's tax return and carry forward any unused losses for future years.

 

Given these rules, there are several actions you should consider:

 

·         Avoid short-term gains when possible, as these are taxed at higher ordinary rates.  Unless you have short-term losses to offset them, try holding the assets for at least one year.

·         Take a good look at your portfolio before year-end and estimate your gains and losses.  Some investments, such as mutual funds, incur trading gains or losses that must be reported on your tax return and are difficult to predict.  Most capital gains and losses will be triggered by the sale of the asset, which you usually control.  Are there some winners that have enjoyed a run and are ripe for selling?  Are there losers you would be better off liquidating?  The important point is to cover as much of the gains with losses as you can, thereby minimizing your capital gains tax.

·         Consider taking losses before gains, since unused losses may be carried forward for use in future years, while gains must be taken in the year they are realized.

 

Unearned Income Tax

 

A new 3.8% tax on "unearned" income went into effect in 2013, effectively increasing the top rate on most long-term capital gains to 23.8%.  The tax applies to "net investment income," which includes interest, dividends, royalties, annuities, rents, and other passive activity income, among other items.  Importantly, net investment income does not include distributions from IRAs or qualified retirement plans, annuity payouts, or income from tax-exempt municipal bonds.  In general, the new tax applies to single taxpayers with a modified adjusted gross income (MAGI) of $200,000 or more and to those who are married and filing jointly with a MAGI of $250,000 or more.

 

What's to Come?

 

While there are currently no major changes in federal tax rules planned for 2014 that have been approved by Congress, there are many steps you can take today to help lighten your tax burden.  Work with a financial professional and tax advisor to see what you can do now to reduce your tax bill in April.

 

This communication is not intended to be tax advice and should not be treated as such.  Each individual's tax situation is different. Y ou should contact your tax professional to discuss your personal situation.

 

1Under certain circumstances, the IRS permits you to offset long-term gains with net short-term capital losses. See IRS Publication 550, Investment Income and Expenses.

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

 

2013-11-25 Market Capitalization And Stock Rise

MARKET CAPITALIZATION AND STOCK RISK

 

Market cap -- or market capitalization -- allows investors to understand the relative size of one company versus another. Market cap measures what a company is worth on the open market as well as the market's perception of its future prospects, because it reflects what investors are willing to pay for its stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 50 million shares selling at $30 a share would have a market cap of $1.5 billion.

 

Large-cap companies are typically firms with a market value of $10 billion or more. They often have a reputation for producing quality goods and services, a history of consistent dividend payments, and steady growth. As a result, investments in large-cap stocks may be considered more conservative than investments in small-cap or midcap stocks, potentially posing less risk in exchange for less aggressive growth potential.

 

Midcap companies are typically businesses with a market value between $2 billion and $10 billion. These are typically established companies in industries experiencing or expected to experience rapid growth. These medium-sized companies may be in the process of increasing market share and improving overall competitiveness. Midcaps may offer more growth potential than large caps, and possibly less risk than small caps.

 

Small-cap companies are typically those with a market value of $300 million to $2 billion. These are generally young companies that serve niche markets or emerging industries. Small caps are considered more aggressive and risky. The relatively limited resources of small companies can potentially make them more susceptible to a business or economic downturn. They may also be vulnerable to the intense competition and uncertainties characteristic of untried, burgeoning markets.

 

Micro-cap companies have a market capitalization of between $50 million to $300 million. The upward potential of these companies is similar to the downside potential, so they do not offer the safest investment, and a great deal of research should be done before entering into such a position.

 

What Impacts a Company's Market Cap?

 

There are several factors that could impact a company's market cap. Significant changes in the value of the shares -- either up or down -- could impact it, as could changes in the number of shares issued. Any exercise of warrants on a company's stock will increase the number of outstanding shares, thereby diluting its existing value. As the exercise of the warrants is typically done below the market price of the shares, it could potentially impact its market cap.

 

But market cap typically is not altered as the result of a stock split or a dividend. After a split, the stock price will be reduced since the number of shares outstanding has increased. For example, in a 2-for-1 split, the share price will be halved. Although the number of outstanding shares and the stock price change, a company's market cap remains constant. The same applies for a dividend. If a company issues a dividend, its price usually drops as the number of shares increases.

 

To build a portfolio with a proper mix of stocks, you will need to evaluate your financial goals, risk tolerance, and time horizon. A diversified portfolio that contains a variety of market caps may help reduce investment risk in any one area and support the pursuit of your long-term financial goals.¹

 

¹ Diversification does not assure a profit or protect against a loss.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

 

2013-10-28 Essential Health Benefits Under The Affordable Care Act

 

Essential Health Benefits Under The Affordable Care Act

 

Beginning in 2014, the Affordable Care Act (ACA) will greatly expand the health care benefits for the millions of Americans with no health coverage or who are underinsured. A few of the medical services that may be currently excluded from your current coverage will be required under the Affordable Care Act.

 

The ACA has identified 10 "essential health benefits," which must be covered by non-grandfathered health plans. Even those with "full" insurance are expected to benefit from the act, as only 2% of insurers currently provide all 10, but more are expected to expand their coverage.1

 

The 10 essential benefits are:

 

1.    Ambulatory patient services, also known as outpatient care. However, details about the plans' networks and access to doctors will vary on a state-by-state basis.

2.    Emergency services. Emergency room visits will no longer require preauthorization, and you can no longer be charged for going out of network.

3.    Hospitalization. Your insurer must cover your hospitalization, although you could be required to pay up to 20% of the bill if you haven't reached your out-of-pocket limit.

4.    Maternity and newborn care. Insurers will now have to provide prenatal care, childbirth, and care for the newborn infants as part of their standard coverage.

5.    Mental health and substance use disorder services. Many plans do not currently cover these services. In some states, coverage may be limited to a certain number of visits.

6.    Prescription drugs. All individual and small-group plans will cover at least one drug in every category and class in the United States Pharmacopeia.Drugs will also be counted toward your annual out-of-pocket maximum limits.

7.    Rehabilitative and habilitative services. The law is a boon to those with chronic diseases, who will now be covered for therapies to help them overcome their long-term disabilities. It also requires the coverage of rehab therapies as well as medical equipment, such as walkers and wheelchairs.

8.    Laboratory services. This includes prostate exams and Pap smears. You can still be billed for partial costs of diagnostic lab tests as well as more extensive screenings, such as an MRI.

9.    Preventive and wellness services. The law requires insurers to cover all of the 50 preventive services recommended by the U.S. Preventive Services Task Force at no extra cost. Those services include diabetes screening, high blood pressure screening, mammograms, and colorectal cancer screening.

10. Pediatric services, including oral and vision care. Dental and vision care is considered an essential benefit for children aged 18 and younger whose parents or guardians get insurance through the individual or small-group plans.

 

Additionally, most plans -- obtained through an employer or on the marketplace -- cannot deny coverage or charge more because of a pre-existing health condition.

 

Out-of-Pocket Spending Limits Delayed on Some Plans

 

The amount of money people will have to pay out-of-pocket each year for medical and prescription drug costs will be capped at $6,350 for individuals and $12,700 for a family. But these limits will not be in effect until 2015 for plans that use more than one service provider to give insurers and employers more time to comply.

 

 

¹ HealthPocket, August 2013

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-10-15 Government Shutdown No Reason To Panic

 

 

GOVERNMENT SHUTDOWN NO REASON TO PANIC

 

You may be concerned about the current government shutdown and its impact on the market and your investment accounts. After nearly three weeks into the shutdown, many people are becoming more nervous. Until a resolution is reached, all government functions considered non-essential have been suspended. The Republican condition for ending the shutdown has been to defund or delay the Affordable Care Act.

 

Some Republicans believe this is their last chance to stop Obamacare, which is now law. When Social Security and Medicare were first introduced they faced similar resistance. Nevertheless, once these entitlements were in place they became politically difficult to remove.

 

Both parties are loudly blaming each other. If polls clearly showed that one side was taking the blame, that party might be motivated to back down. However, many people have concluded that Republicans and Democrats are both at fault, increasing the chance that the dispute could stretch on.

 

History tells us that the current stalemate is probably no reason to panic. Government shutdowns are hardly rare – they have occurred eighteen times since 1976. The Standard and Poors 500 index declined only one-half percent during previous shutdowns, and rose an average of eleven percent in the twelve months following resumptions.¹

 

Also worrisome is the possibility that the government shutdown will remain unresolved by the time the government reaches its debt ceiling around October 17. The debt ceiling has been raised 74 times since March 1962 and has typically been an uncomplicated, non-political procedure. This time around, Republicans have indicated that they will require the same Obamacare-defunding conditions for approval.

 

The clash will probably create a lot of drama but will not necessarily have lasting negative consequences for the market. The last time government debt default was a possibility in August 2011, stocks fell 11% (much less for diversified accounts). Since then, however, stocks have climbed 44%.¹

 

Although the impasse in Congress is reason for concern, the overall economic indicators are very positive – we have the best housing starts in six years, unemployment has fallen below 7.5%, corporations are making record profits and the market has been on a tear. Even a robust market does not go up in a straight line and will experience bumps in the road. If there were no risk, the market would not generate such good returns. A long-term outlook using a globally-diversified strategy is one of the best ways to capture those returns.

 

¹ www.bloomberg.com/news/2013-10-01

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-9-30 Aligning Your Investment With Your Values

 

ALIGNING YOUR INVESTMENT WITH YOUR VALUES

 

Whether the focus is on advancing environmental causes, building healthy communities, or promoting corporate ethics, investors interested in making a difference in the world are spurring interest in Socially Responsible Investing, also known as sustainable and responsible investing.

 

Sustainable and responsible investing traces its roots to religious concerns. It expanded in scope in the 1970s and 1980s as investors joined other protestors against apartheid by choosing not to invest in companies involved in South Africa. From there, the definition of Socially Responsible Investing evolved to include the avoidance of "sin stocks" -- stocks of companies that derive earnings from gambling, alcohol, and tobacco. More recently, the concept has expanded further to include any number of social and environmental issues as well as a growing concern with "corporate character" -- seeking out companies that have commendable records on corporate governance.

 

Sustainable and responsible investments accounted for more than $3.7 trillion in assets under management as of 2012.¹ Depending on a particular portfolio and its investment directive, Socially Responsible Investing criteria are broad and potentially can include:

 

● Corporate governance, or how a company's management team shares rights and responsibilities with shareholders.

● Environmental practices, such as forestry, mining, waste disposal, or hydraulic fracturing.

● Employment policies, including diversity.

● Practices of global suppliers.

● Health issues, including products that could contribute to addictions or obesity.

● Military use of a company's product or service.

● Products that are inconsistent with certain religious beliefs, such as use in abortions.

● Geopolitical factors, such as a presence in a country where the government has supported war or genocide.

 

For example, environmental investment factors are incorporated in the management of 551 investment vehicles with $240 billion in assets under management.¹

 

Socially Responsible Investing has both advocates and critics. Those with a skeptical eye contend that investment decisions should be made solely on the basis of investment criteria. But advocates point to examples of Socially Responsible Investing initiatives that have shifted traditional notions of investing to include a greater emphasis on the environment and a corporation's impact on society.

 

 

Factors to Consider

 

If you are interested in Socially Responsible Investing, it may be worthwhile to take the following into account:

 

● Because socially responsible funds are actively managed, their performance will not necessarily mirror broader market trends.

● Actively managed mutual funds, including a socially responsible fund, are likely to have slightly higher expenses compared with a passive investment.

● It is difficult to compare socially responsible funds with one another because, in many instances, criteria for stock screening are different from one fund to another.

● It is still possible to attain an adequate level of diversification using a socially responsible selection screen.

 

If you are interested in Socially Responsible Investing, there are mutual funds whose investment criteria correspond to various types of Socially Responsible Investing screens. It is possible for investors to screen individual securities on their own, but this could be very time consuming. Socially Responsible Investing may not be for everyone, but it presents an additional way of viewing the investment universe.

 

Source/Disclaimer:

¹ Sustainable and Responsible Investing Trends in the United States, 2012.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-9-17 Tips For Surviving Market Turbulence

 

TIPS FOR SURVIVING MARKET TURBULENCE

 

Although the market has been on a tear, with the Standard and Poors 500 index clocking 18% year-to-date, it has also been a turbulent market rocked by uncertainty over interest rates, emerging market growth and more recently by the conflict in Syria. A careful review of your portfolio and risk tolerance can help you keep panic at bay when the markets turn choppy.

 

Most stock market investors are looking for the same result: strong and steady gains of their investments. Dealing with a period of sustained falling stock prices is not easy. All too often, investors react to a sharp drop in prices by panic-selling or digging in their heels despite deteriorating fundamentals. More thoughtful investors see a correction or downturn as an opportunity to review the risks in their portfolios and make adjustments where necessary.

 

When confronted with any adverse market event -- whether it is a one-day blip, a more lengthy market correction (a decline of between 10% to 20%), or a prolonged bear market (a decline of more than 20%) -- take time to review your portfolio. Dealing with volatility can be difficult. Here are some suggestions to help you and your portfolio survive market turbulence.

 

Tip 1: Keep a long-term perspective.The only certainty about the stock market is this: It will always experience ups and downs. The market reacts to news, and news by its nature is unpredictable. That is why it is important to keep emotions in check and stay focused on your financial goals. A globally-diversified strategy -- making a broad investment and then holding on to it despite short-term market moves -- can help. The opposite of a diversified strategy is market timing -- buying and selling investments based on what you think the market will do next. Market timing, as most investment professionals will tell you, is risky. No one has a crystal ball – even the "gurus". It is jokingly said that "The Hall of Fame for market timers is an empty room". If your predictions are wrong, you could invest when the market is on its way down or sell when it is on its way up. In other words, you risk locking in a loss or missing the market's best days.

 

Tip 2: Maintain your balance.Over time, your asset allocation is likely to shift as your assets appreciate and depreciate.¹ Rebalance regularly to help ensure your assets are properly allocated. Rebalancing can also help to enhance returns. In any investment you want to "buy low and sell high". Rebalancing does this automatically by regularly selling portions of asset classes that have done well (locking in the gains) and putting the proceeds into asset classes that have good potential for growth (buying at a bargain). It can be beneficial to periodically reexamine your risk tolerance. Has anything changed in your life that has made you more or less risk averse?

 

Tip 3: Talk with a professional.A Certified Financial Planner™ can help you separate emotionally driven decisions from those based on your goals, time horizon, and risk tolerance. Researchers in the field of behavioral finance have found that emotions often lead investors to read too much into recent events even though those events may not reflect long-term realities. The media has become very skilled at stoking fear and greed, encouraging and magnifying herd behavior. With the aid of a financial professional, you can sort through the myths and truths. You will likely find that if your investment strategy made sense before the crisis, it will still make sense afterward.

 

It is important to remember that periods of falling prices are a natural part of investing in the stock market. Short-term fluctuations are the price you pay for good long-term returns. Perhaps the best move you can make is to reevaluate your overall risk position and then stick to your plan.

 

 

Source/Disclaimer:

¹ Asset allocation does not ensure a profit or protect against a loss.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

 

2013-9-3 Your Rights As Beneficiary of a Trust

Your Rights As Beneficiary of a Trust

 

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trust beneficiaries are usually entitled to income from the trust. The trustee who is in charge of the trust is responsible to make sure that assets from the trust are invested well and productively. The following are some of your rights.

 

The right to an accounting of investments:Trustees typically decide how the principal of the trust will be used As a result, the law requires that trustees act prudently with investments, diversifying so that all the assets of the trust are not in one place, which would put them at risk and could limit returns.

            Under the Prudent Investor Rule, the trustee must avoid speculative and risky investments, like second mortgages and new business ventures, and keep in mind the following factors:

            ● The needs of the beneficiaries

            ● The need to preserve the estate

            ● The amount and regularity of income

            If you have questions or concerns about the trustee's decisions for the investments, you have the right to request an accounting of investments. This accounting report will detail every investment and its gains and losses.

 

The right to receive annual trust reports:Trust reports contain information that includes the income that was produced by the trust and expenses and commissions paid out. Traditionally, these reports should be mailed out annually.

 

The right to request a new trustee:If a trustee is being difficult, uncooperative, or refusing to do the job, you can request a new trustee. This requires a legal filing and a ruling by the court. If the reason for the request is because of large losses of principal, the trustee will also be required to repay the trust.

 

The right to sue the trustee:The trustee can be held liable for loss of trust assets and for income that that was lost because of the wrongful conduct by the trustee. The trustee has a fiduciary duty to manage the trust with due care and caution and must be loyal and impartial to the beneficiaries.

 

The right to terminate the trust:If all the beneficiaries on a trust are "adults of sound mind," the trust can be terminated if the court determines that the intent of the creator of the trust has either already been accomplished or cannot be accomplished for reasons such as impossibility. All the trust beneficiaries must agree, including those beneficiaries of the trust that are entitled to the remainder of the trust assets after the trust would have naturally ended. Some trusts are difficult to terminate, such as spendthrift trusts where the settlor clearly intended that the trust assets be withheld and protected from the beneficiaries and their creditors.

 

Being named as a beneficiary of a trust is indeed a welcome event, but not without its complications. To avoid unfortunate consequences, to receive help understanding your rights, and to protect your inheritance, it may be wise to engage the services of an experienced trust attorney.

 

The information in this communication is not intended to be legal advice and should not be treated as such. Each individual's situation is different. You should contact an attorney skilled in trusts and wills to discuss your personal situation. For a better understanding of the Prudent Investor Rule and what constitutes a properly-diversified investment, consult with your Certified Financial Planner™.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-8-19 Divorce and Finances


DIVORCE AND FINANCES

 

Divorce can be a complicated and challenging process in which details are easily overlooked. It is important to know the laws that shape divorce proceedings and to understand the impact they have on your assets. This is especially true for those aged 50 and older. Why? This group is getting divorced at a greater rate than other age groups. In fact, according to a recent study, the divorce rate for those aged 50 and older has doubled since 1990.¹

 

Assets

 

Typically, everything you and your spouse acquired from the day you were married is subject to division. Exceptions include individual inheritances, gifts to an individual spouse, and assets acquired before marriage. When assets are divided, the court considers each spouse's earning potential, the length of the marriage, and each spouse's contribution to building household assets.

 

The exception to this is the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under the laws of these states, almost all assets are divided equally.

 

Debt

 

If you live in a community property state, debt, like your assets, will be divided with your former partner. You will be responsible for half of all debt in jointly held accounts and, in some cases, half of a former spouse's debt as well.

 

If you do not live in a community property state, you remain responsible for your individual debt (but not your spouse's) and any debt in jointly held accounts. Many couples include debt payment as part of the settlement.

 

If you and your spouse own a home that has appreciated in value, consider whether you want to sell it before the divorce is finalized. Federal tax rules offer an exclusion of up to $500,000 in realized capital gains for married taxpayers. This amount is cut in half for single filers. Be sure to consult a tax advisor for additional information about these rules.

 

Retirement Assets

 

Money in your defined contribution or pension plan may legally be divided during a divorce. The divisible amount begins to accumulate on the day you are married and ends on the day you are divorced.

To claim a share of a spouse's plan benefits, you need to obtain a court order called a Qualified Domestic Relations Order (QDRO) and provide it to your spouse's plan sponsor before distributions are completed. You and your spouse have the option of deciding to not divide retirement plan assets. Note that traditional and Roth IRAs do not have to be covered by a QDRO, but should be addressed in any settlement.

 

Estate Planning

 

You may want to review your will as it may be beneficial to review and amend your estate plan at the same time you commence a divorce proceeding. Also review beneficiary designations for pensions, retirement plans, and life insurance policies.

 

Social Security

 

A divorced woman is eligible for Social Security benefits based on her ex's earnings record if she meets all of the following requirements:

 

She is at least 62 years old.

She was married for at least 10 years.

She did not marry someone else before age 60.

 

In order for a woman to file for spousal benefits before her ex does, she must be at least 62 years old and they must have been divorced for at least two years.

 

If you find yourself faced with divorce, it is essential to protect your financial future. Enlisting the help of an attorney and carefully monitoring the process can ensure that your interests are considered and that you will not need to revisit the proceeding at a later time.

 

The information in this communication is not intended to be legal or tax advice and should not be treated as such. Each individual's situation is different. You should contact your legal and/or tax professionals to discuss your personal situation.

 

¹ The National Center for Family and Marriage Research at Bowling Green State University, "Divorce in Middle and Later Life," March 2012.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-7-24 The Three Phases of Retirement


THE THREE PHASES OF RETIREMENT
 

Although many Americans now plan for a retirement up to 20 years, your retirement may last much longer.

 

Traditionally, retirees were advised to project income needs over the length of time of retirement, add on an annual adjustment for inflation, and then identify any potential income shortfall. But the planning required may not be that linear. For example, research suggests that some retirees' expenses -- other than health care -- may slowly decrease over time. That means many retirees -- depending on personal expenses -- may need more income early in their retirement than later. This necessitates taking a fresh look at retiree expenses and income, as well as withdrawal and estate planning strategies. 

 

Phase 1: The Early Years

 

The need to potentially stretch out income over a longer period than previous generations also means that some people may not want to tap Social Security when they are first eligible. Consider that for each year you delay taking Social Security beyond your full retirement age until age 70, you will receive a benefit increase of 6% to 8%, depending on your age. One caveat: If you do decide to delay collecting Social Security, you may want to sign up for Medicare at age 65 to avoid possibly paying more for medical insurance later.

 

Also plan ahead as to how you will pay for health care costs not covered by Medicare as you age. Remember that Medicare does not pay for ongoing long-term care or assisted living and that qualifying for Medicaid requires spending down your assets.

 

If you have accumulated assets in qualified employer-sponsored retirement plans, now may be the time to decide whether to roll that money into a tax-deferred IRA, which could make managing your investments easier. A tax and financial professional can also help you decide which accounts to tap first at this point in your post-retirement planning -- a situation that could significantly affect your financial situation.

 

Finally, do not overlook any pension assets in which you may be vested, especially if you changed employers over the course of your career. Pensions can supply you with regular income for life.

 

 Phase 2: The Middle Years

 

By April 1 of the year after you reach age 70½, you will generally be required to begin making annual withdrawals from traditional IRAs and employer-sponsored retirement plans (except for assets in a current employer's retirement plan if you are still working and do not own more than 5% of the business). The penalty for not taking your required minimum distribution (RMD) can be steep: 50% of what you should have withdrawn. Withdrawals from Roth IRAs, however, are not required during the owner's lifetime. If money is not needed for income and efficient wealth transfer is a goal, a Roth IRA may be an attractive option.

 

Also, consider reviewing the asset allocation of your investment portfolio. Does it have enough growth potential to keep up with inflation? Is it adequately diversified among different types of stocks and income-generating securities?

 

Phase 3: The Later Years

 

Review your financial documents to make sure they are true to your wishes and that beneficiaries are consistent. Usually, these documents include a will and paperwork governing brokerage accounts, IRAs, annuities, pensions, and in some cases, trusts. Many people also draft a durable power of attorney (someone who will manage your finances if you are not able) and a living will (which names a person to make medical decisions on your behalf if you are incapacitated).

 

You will still need to stay on top of your investments. For example, an annual portfolio and asset allocation review are important. Keep in mind that a financial advisor may be able to set up an automatic rebalancing program for you. And finally, be aware that some financial companies require that you begin taking distributions from annuities once you reach age 85.

 

Preparing for a retirement that could encompass a third of your life span can be challenging. Regularly review your situation with financial and tax professionals and be prepared to make adjustments.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-7-8 Tips For Managing An Inheritance


TIPS FOR MANAGING AN INHERITANCE

 

A sizeable inheritance can represent a life-changing opportunity. Here are some tips to help you prudently manage your windfall.

 

Consult With a Financial Professional and Tax Professional

 

Depending on the type of inheritance (e.g., investments, life insurance, retirement account), you could be dealing with substantial federal and/or state inheritance taxes. Working with a Certified Financial Planner™ and/or a CPA® could help you plan the sale of any assets and deal with the tax implications.

 

·         If your inheritance was from your spouse, there may be no taxes due.

·         Life insurance proceeds are usually tax free.

·         Non-retirement assets are taxed when sold, and those assets typically receive a "step up" in cost basis. That means that any capital gains tax you owe will be based on the asset's fair market value at the date of death of the benefactor.

 

If you inherit an annuity, you may have to pay taxes on the distributions. Be very careful when taking your distributions.

 

If you are inheriting a retirement account like a 401(k), 403(b), 457 plan or IRA, making the right decision can save you thousands in taxes. For example, if you cash out your uncle's IRA and roll the money over into your own IRA, the entire amount of the rollover will be subject to ordinary income taxes. On the other hand, if you roll your uncle's IRA into a Beneficiary IRA there are no taxes on the transfer and you will only be taxed as you take distributions. Note too that there are special considerations for spouses rolling over their deceased spouse's retirement account.

 

Park the Cash

 

Before you make any plans or major purchases, stop. Deposit the inheritance or investments in a bank or brokerage account. If you are married, you need to determine whether to put the account solely in your name or jointly with your spouse. Note that inheritances are considered separate property in case of divorce. However, once they are commingled in a joint account, those assets lose that protection.

 

Cut Down/Eliminate Your Debt

 

Your inheritance may allow you the ability to pay off your debt, including your mortgage. But first consider paying off those loans that carry higher interest rates such as credit cards, personal loans, and car loans. Then consider paying off your mortgage. This would also be an excellent time to fund an emergency account with at least six months' worth of living expenses.

 

Think About Your Other Goals

 

If you don't think about your goals before you start spending you could easily squander all of your inheritance before accomplishing your most important objectives. Identifying your financial goals can help you determine what types of investments to make or other types of accounts to open. These goals could include:

 

·         Contributing to charity

·         Setting up a trust or foundation

·         Paying for a family member's education

·         Helping out loved ones

·         Adding to your retirement savings

 

Review Your Insurance and Estate Planning Needs

 

If you've inherited a significant sum, it may be wise to increase the liability limits on your homeowners and automotive policies. If you inherited jewelry, artwork, or real estate, you may need to increase your property and casualty coverage. Consider an umbrella policy to protect yourself against personal liability. Does the inheritance inflate the size of your estate so that it will be subject to estate taxes? Are you thinking about setting up a trust to provide for family or charity?

 

Do Something Nice for Yourself

 

Set aside a small percentage, like 5% to 10% of your inheritance, for a "splurge" to reward yourself for exercising discipline and good judgment. Take a trip. Buy a new car. Just be sure to keep it small. After all, inheritances don't grow on trees.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-1-22 Strategies To Outlive Your Assets


STRATEGIES TO OUTLIVE YOUR ASSETS

 

Many Americans do not realize that one of the greatest risks to their financial security in retirement may be outliving their money. According to pension mortality tables, at least one member of a 65-year-old couple has a 72% chance of living to age 85 and a 45% chance of living to age 90.¹ This suggests that many of us will need to plan carefully to ensure that we don't outlast our assets.

 

The first step in tackling longevity risk is to figure out how much you can realistically afford to withdraw each year from your personal savings and investments. You can tap the expertise of a Certified Financial Planner™ to assist you with this task.

 

One strategy to help make your money last is to withdraw a conservative 4% to 5% of your principal each year. However, your annual withdrawal amount will depend on a number of factors, including the overall amount of your retirement pot, your estimated length of retirement, annual market conditions and inflation rate, and your financial goals. For example, do you wish to spend down all of your assets or pass along part of your wealth to family or a charity? 

 

Tips to Consider

 

No matter what your goals, there are ways to potentially make the most out of your nest egg. Here are a few suggestions.

 

Start a cash reserves fund. You'll likely need ready access to a cash reserve to help pay for daily expenditures. A common rule of thumb is to keep at least 12 months of living expenses in an interest-bearing savings account, though your needs may vary. Then, consider replenishing your cash reserve on an annual basis by selectively liquidating different longer-term investments, timing gains and losses to offset one another whenever possible.

 

Be aware of interest rates. Responding to the current interest rate environment is one way to potentially squeeze more income from your savings and stretch out the money you've accumulated for retirement. For example, if rates are trending upward, you might consider keeping more money in short-term certificates of deposit (CDs).² The opposite strategy may be employed when rates appear to be declining.

 

Look into income-generating investments. Most retirees need their investments to generate income. Bonds and dividend-paying stocks may help fill this need. "Laddering" of bonds -- purchasing bonds with varying maturity dates at different times -- can potentially create a steady income stream while helping reduce long-term interest exposure. Dividend-paying stocks potentially offer the opportunity for supplemental income by paying part of their earnings to shareholders on a regular basis.³ Additionally, investing in a diversified portfolio of Exchange-Traded Funds which hold many dividend-paying stocks, may help reduce cost and risk compared with investing in a handful of individual stocks.4 Dividend-oriented ETFs have become one of the most popular types of investments for these very reasons. Ask your CFP®™ how they work and how they might benefit you.

 

Source/Disclaimer: 

¹Source: Social Security Administration, Period Life Table, April 2012.

²Certificates of deposit (CDs) offer a guaranteed rate of return, guaranteed principal and interest, and are generally insured by the FDIC, but do not necessarily protect against the rising cost of living.

³Companies that offer dividend-paying stock cannot guarantee that they will always be able to pay or increase their dividend payments.

4Investing in mutual funds involves risk, including loss of principal.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-2-4 Containing College Costs


CONTAINING COLLEGE COSTS

 

College graduates in 2011 walked away with a diploma and an average of nearly $27,000 in student loans, according to a recent report from the Institute of College Access and Success.¹ The report also estimated that two-thirds of the class of 2011 held student loans upon graduation, up 5% from the 2010 findings.

 

Student debt is widely understood to be a serious and growing problem in the United States. The total debt recently topped $1 trillion, and represents the largest form of consumer debt. The Pew Research Center reports that nearly one out of five U.S. families has outstanding college debt. About 10% of those with debt owe more than $61,894, and 4% owe more than $100,000 according to the study.4

 

The amount of debt appears to be more than students can manage. The federal student loan default rate is now the highest it has been in 14 years, at 9.1%.² According to economists with the Federal Reserve Bank of New York, more than five million student loan borrowers have at least one loan past due.³

 

The news gets worse: While unemployment for college graduates was at 8.8% in 2011 -- mostly in line with the national rate -- an estimated 38% of recent graduates are working in jobs that do not require a college diploma.

 

In addition, student loan debt is usually not forgiven. Bankruptcy is generally not an option for student loans. Students who default on their loans can face an extra 20% collection fee, their wages can be garnished, and their tax refunds may be seized.

 

What can you do to help contain costs for your college-ready child? Here are some tips.

 

Start locally: Attending a community college for one or two years could substantially reduce costs when compared with a four-year public or private school.

 

Tap into federal loans first: Find out more at the Federal Student Aid website, created by the Department of Education. Federal Student Aid provides more than $150 billion in federal grants, loans, and work-study funds each year.

 

Investigate Income-Based Replacement (IBR): Available for federal student loans since 2009, Income-Based Replacement caps monthly payments at a manageable share of income and forgives any debt remaining after up to 25 years of payments, or as few as 10 years of payments, for those working for public or nonprofit employers.

 

Consider private loans as a last resort: These loans can be tricky, as graduates find themselves locked into loan terms that can make repayment difficult as they navigate the job market and struggle to find steady work.

 

Balance your career choice with the overall cost: If you career choice is one that pays modest compensation, but the cost of education for that career is high, evaluate the long-term consequences of your decision.

 

Do not sacrifice your retirement nest egg: Although it may be tempting to help your child by taking a distribution from your 401(k) or IRA, most Certified Financial Planners™ discourage it. There are scholarships, grants, loans and work study for college but no one is likely to lend you money or give you a scholarship for retirement.

 

Source/Disclaimer:

¹ The Institute of College Access & Success, "Student Debt and the Class of 2011," October 2012.

² U.S. Department of Education, Federal Student Aid Chart, October 2012.

³ Federal Reserve Bank of New York, "Grading Student Loans," 2012.

4Investment News 10/1/2012

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-3-4 How To Survive An IRS Audit


HOW TO SURVIVE AN IRS AUDIT

 

Most taxpayers escape the scrutiny of an IRS audit after filing their annual returns, but for the 1% or so who are audited, there are strategies to keep in mind that could make the experience less painful than it needs to be.

The IRS audited approximately 1.6 million individual tax returns filed in 2011.¹ That amounts to just over 1.1% of 141 million individual returns filed that year. However, just over one-quarter of those audits involved face-to-face meetings with IRS auditors. The rest were conducted through the mail.

 

Filers earning less than $100,000 had a 1% chance of being audited. Among filers with income exceeding $200,000, the audit rate was 3.93%; for those earning more than $1 million, it climbed to 12.5%. Self-employed taxpayers who filed a Schedule C and reported gross receipts of at least $100,000 were audited at a 4% rate.

 

What Triggers an Audit?

 

The following are some of the red flags that could alert the IRS, aside from earning a lot of money:

● Running a cash business

● Claiming the home-office deduction

● Self-employment

● Deducting business meals, travel, and entertainment

● Failing to report all taxable income

● Claiming 100% business use of a vehicle

● Making large charitable contributions

● Claiming a rental loss

● Taking larger than usual deductions

 

What the IRS Looks For

 

Whether the IRS requests a face-to-face meeting or chooses to conduct its audit through correspondence, the following issues may arise:

 

Unreported income-- The IRS will assess taxes on any "missing" amount plus interest and penalty charges -- regardless of whether the omission was accidental or intentional. A finding of significant fraud could even result in criminal prosecution and jail time.

Personal expenses vs. business expenses-- Be prepared to prove that expenses you have claimed for business purposes were not actually personal expenses. Auditors pay particular attention to deductions related to entertainment, meals, travel, and transportation. If you own a business, keep all receipts and be ready to answer questions about the connection between each expense and your business.

Industry insights-- Business owners should also keep in mind that the IRS has a Market Segment Specialization Program (MSSP) designed to train its employees about the intricacies of dozens of specific business niches, ranging from Alaskan commercial fishing to car washes and the scrap metal industry. Fortunately, the MSSPs Audit Technique Guides are available online (www.irs.gov; look under the "Businesses" heading), so you can check to see whether your industry is included in the program. If it is, studying the relevant guide might help you get inside the head of your auditor.

 

Even if you do not expect the worst during your audit, there are several reasons it is still a good idea to enlist the services of an experienced tax professional to help you navigate the process. For example, a professional is probably more familiar with the complexities of ever-changing tax laws than you, especially this year when many of the rules have changed. The CPA® is also less likely to let emotions cloud his or her judgment. In addition, letting a pro speak represent you in front of the IRS reduces the chance that you will accidentally volunteer information that could hurt your case.

 

This communication is not intended to provide tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your CPA® or tax professional to discuss your personal situation.

 

¹Source: IRS, March 2012.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-4-1 Consider Dividend-Paying Stocks For Income


CONSIDER DIVIDEND-PAYING STOCKS FOR INCOME

 

Those who rely on their investments for income have had a rough go of it since the beginning of the recession in 2007. As interest rates declined, returns on Certificates of Deposit have also steadily gone down, giving retirees a de facto "pay cut".

 

Not only that, the bonds that provided good interest have matured or been called, closing off that source of income as well.

 

Although it may be tempting to reinvest the proceeds from matured bonds into new long-term bonds, this may be one of the most dangerous moves in today's market climate. Up to now, interest rates have been held artificially low by actions by the Federal Reserve Bank. Ben Bernanke, the Chairman of the Fed, has been purchasing billions worth of bonds each month in order to keep interest rates low in the hopes this would stimulate the economy out of the recession. Now that new housing starts have hit a 6-year high, and the Dow Jones Industrial Average and Standard and Poors 500 indices have also hit record highs, there is increased pressure on the Fed to stop the "quantitative easing" and let interest rates rise to normal levels. Economists have said that a return to higher interest rates is as inevitable as gravity.

 

When interest rates rise, bond values tend to fall. The drop in bond values hits mostly long-maturity bonds (those with maturities of 5 years or more). If you buy long-maturity bonds in the pursuit of higher interest rates, it may come back to bite you when interest rates rise.

 

Is there a solution? One group of investors who tended to fare well during the recession and continue to do well in today's volatile market is those who have dividend-oriented investments. While share prices plummeted during the Great Recession, dividend distributions remained relatively stable. This is because the large, mature companies who offer dividends tend to pay out the same dividends no matter what is happening to their stock price. Consequently, investors who depended on the dividends for income came through the market bubble relatively unscathed.

 

As continued uncertainty at home and abroad roils the financial markets, income-minded investors seeking protection from the bumpy road ahead may find that dividend-paying stocks offer an attractive mix of features and warrant a place in their equity portfolios.

 

The appeal is simple: Dividend-paying stocks can provide investors with tangible returns on a regular basis regardless of market conditions. Note that dividends can be increased, decreased, and/or eliminated at any time without prior notice.

 

The Potential Benefits of Dividend-Paying Stocks

 

A sign of corporate financial health. Dividend payouts are often seen as a sign of a company's financial health and management's confidence in future cash flow. Dividends also communicate a positive message to investors who perceive a long-term dividend as a sign of corporate maturity and strength.

 

A key driver of total return. There are several factors that may contribute to the superior total return of dividend-paying stocks over the long term. One of them is dividend reinvestment. Generally-speaking, the longer you can reinvest your dividends, the greater your total return will be.

 

Potentially stronger returns, lower volatility. Dividends may help to mitigate portfolio losses when stock prices decline. Over long time horizons, stocks with a history of increasing their dividend each year have also produced higher returns with considerably less risk than non-dividend-paying stocks.

 

If you are considering adding dividend-paying stocks to your investment mix, keep the following thoughts in mind.

 

Dividend-paying stocks may help diversify an income-generating portfolio. Income-oriented investors may want to diversify potential sources of income within their portfolios. Given current realities present in the bond market, stocks with above-average dividend yields may compare favorably with bonds and may act as a buffer should conditions turn negative within the bond market.

 

Dividends benefit from continued favorable tax treatment. The Fiscal Cliff agreement extended the Bush-era tax cuts, which are capped at a maximum of 15% on qualifying dividends for most taxpayers. The rate rises to 20% for those who earn over $450,000.

 

Diversify your dividend-oriented portfolio. A properly-diversified strategy (ie notputting all your money into just one dividend-paying mutual fund or stock) can pay you higher dividends as well as offer greater safety. Consult with your Certified Financial Planner™ to create a portfolio that is designed for your needs and risk tolerance.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-4-15 How To Use Life Insurance In Estate Planning


HOW TO USE LIFE INSURANCE IN ESTATE PLANNING

 

Life insurance is typically a critical element of a family's estate plan -- it may enhance the amount of wealth you can bequeath to your heirs and provide a ready source of cash for post-death financial obligations. If the value of your estate exceeds the federal estate tax threshold (for 2013, this amount is $5.25 million), this source of liquidity may reduce the likelihood that your heirs will be forced to sell assets to pay estate taxes. Even when you are not a multi-millionaire, life insurance can provide flexibility and liquidity when it is most needed.

 

When you designate an individual as beneficiary, life insurance proceeds are paid directly to the beneficiary. This avoids the cost and delay of probate. The beneficiary has quick access to a source of funds that may be used to pay expenses, such as lawyer's fees, associated with settling your estate. If the policy is payable to your estate instead, the proceeds are subject to probate the same as any other asset. Because the probate process for a complicated estate may take as long as a year, your heirs may have to wait longer before accessing the proceeds.

 

Proceeds from life insurance that are received by the beneficiaries upon the death of the insured are generally income tax free, except when:

 

  The insured has died within three years of transferring ownership.

  The proceeds of the policy are paid to the executor of the insured's estate.

  The insured owned or partially owned the policy.

 

Therefore, it is important to structure your life insurance policy correctly before you purchase. It is much more difficult to change it afterwards. Consult with your Certified Financial Planner™ to evaluate your own life insurance strategy.

 

Transferring Your Policy

 

In order to ensure that the death benefit from your life insurance policy will be free of both income taxes and estate taxes, you may want to move the policy outside of your estate. This is accomplished by making sure the owner is someone other than yourself. If it is a new policy, you can structure it correctly from the outset. If it is an old policy you can transfer ownership in a couple of ways.

 

Transferring ownership of a life insurance policy entails a trade-off between control and taxes. Once you transfer ownership to another person, you relinquish control of the policy. If the new owner cashes in and terminates the policy before your death, you have no recourse. The new owner is obligated to pay premiums that may be due following the transfer. However if your children cannot afford to pay the premium themselves, you can periodically gift funds to be used as premium payments.

 

Another technique for transferring ownership is creating an irrevocable life insurance trust (also called an "ILIT") that holds the policy. This trust enables you to stipulate that the policy be kept in effect for as long as you live. You designate a trustee who, upon your death, distributes the insurance proceeds to your heirs.

 

Business Value of Life Insurance

 

Many families also use life insurance proceeds as a tool for balancing an estate that includes ownership of a business. For example, an entrepreneur may find himself in the situation of planning an estate in which his two adult children -- one who works in his business and one who does not -- are his heirs. Many entrepreneurs in this situation will bequeath the business to the son or daughter who works there and designate the other as beneficiary of a life insurance policy whose value equals that of the business.

 

Many business owners rely on life insurance proceeds as part of a business continuation agreement (commonly known as a "Buy-Sell Agreement") that enables business partners to acquire the ownership interest of a deceased owner's heirs. In this instance, the surviving owners use insurance proceeds to purchase the interest of heirs who have no intention of managing the business.

 

Estate and insurance planning are complex areas that require assistance from experienced professionals. It is important that your Certified Financial Planner™, CPA® and estate planning attorney work collaboratively as a team in order to provide you with the best solutions.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-4-29 Retiring Overseas

2013-4-29 Retiring Overseas

RETIRING OVERSEAS

 

Perhaps you have always dreamed of retiring in a chateau in Paris, or maybe on an island in the Caribbean. Retiring overseas is a wish shared by thousands of Americans. If you are thinking of enjoying your golden years in another country, be sure to understand the hurdles you may have to face. The following considerations will help you lay the groundwork for a smooth transition and avoid any unpleasant surprises that might otherwise arise after the big move.

 

Social Security

 

In general, the Social Security Administration allows eligible individuals living outside of the United States to collect Social Security retirement payments in their country of residence. There are exceptions to the rule, however. For example, your eligibility to collect Social Security benefits overseas may be affected by your foreign citizenship status and by whether or not you receive dependent or survivor benefits. Regardless of your citizenship, the U.S. Treasury Department forbids the Social Security Administration to make payments in certain countries, including Cuba, North Korea, Cambodia, and Vietnam.

 

Taxes

 

Unfortunately, living abroad does not absolve you from paying U.S. taxes. As far as the IRS is concerned, out of sight is not out of mind. You will need to pay tax on income -- including taxable distributions from employer-sponsored pension plans and pensions -- regardless of where you live when you receive the money. The United States has signed tax treaties with approximately 50 nations around the world. In part, these treaties are designed to help taxpayers avoid double taxation (i.e., paying full taxes on the same income to two different governments). You should consider working closely with a tax advisor who specializes in international taxation to learn exactly how your benefits payments will be taxed in the country where you plan to live.

 

Exchange Rates

 

If your retirement assets are denominated in U.S. dollars, then you will need to consider the implications of spending and budgeting in a foreign currency. For example, you could opt to convert U.S. dollars to cash on an as-needed basis, or choose to make purchases on a U.S. credit card that automatically "translates" the amount back into dollars on your statement. In either situation, it pays to research which financial institutions offer the best exchange rates and lowest transaction fees.

 

Just as important, however, is the need to understand how currency fluctuations can affect your budget, particularly if you are living on a fixed income. If the value of the U.S. dollar declines against the currency of the country in which you are residing, the purchasing power of your U.S. income may drop significantly.

 

 

Medicare and Other Insurance

 

Medicare coverage usually ends when you set foot on foreign soil. If it is impractical for you to return to the United States for medical treatment, then you should consider purchasing additional health insurance policies. Remember, too, that moving to a country with universal health coverage does not necessarily mean you will be immediately eligible for such coverage. Learn the rules before arriving in your new country.

 

You should review any U.S. insurance policies that you plan to keep in place after a move. For example, if your U.S. homeowner's policy requires the residence to be owner occupied, then a relocation could jeopardize your existing coverage.

 

Finally, do not overlook the immigration policies of the country you hope to call home. The expenses and waiting periods associated with submitting your paperwork may be significant, and ignoring them could result in an unfriendly "welcome" from the local authorities on moving day.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-5-13 Understanding 529 Plan Distributions


UNDERSTANDING 529 PLAN DISTRIBUTIONS

 

529 College Savings Plans (named after a section of the IRS code) have become familiar with parents and grandparents wanting to help their children and grandchildren save for college. Contributions to 529 plans grow tax-free, and when distributions are made to pay for qualified college expenses, the gains are tax-free as well. However, there remains a great deal of confusion around which educational expenses qualify for tax-free distribution status -- and which do not.¹ In Publication 970, the IRS gives detailed guidance on qualified expenses. Here are a few important points.

 

What Is Covered

 

● Tuition and fees are covered in full.

● Room and board, if the student is enrolled at least half time. But such expense must be not more than the greater of (1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or (2) the actual amount charged if the student is residing in housing owned or operated by the school.

● Food. If you spend a certain amount for a meal plan, that entire amount can be deducted, even if used for coffee or ice cream and not a full meal. Weekend meals can also be included if the dining halls are not open.

● Books and supplies. Any fees associated with purchasing school textbooks are considered qualified, as are required equipment or supplies such as notebooks and writing tools.

● Computers/laptops, but only if required by the school. If required, Internet fees and PDAs or "smart phones" may also qualify.

● Special-needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.

 

 What Is Not Covered

 

● Student loans. Interest on or repayment of student loans is not considered a qualified expense by the IRS.

● Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment.

● Transportation to and from school.

● Concert tickets or other entertainment costs, unless attendance is requisite to a course or curriculum.

 

Note that expenses must apply to a qualified college, university, or vocational school for post-secondary educational expenses. Also keep in mind that taxes and a possible 10% penalty will apply to all distributions that are not considered qualified educational expenses by the IRS, so be sure to check first.

 

When tapping your 529 account, be sure to avoid taking too much or too little.

 

● If you take too much: The excess will be classified as a nonqualified distribution. You or your beneficiary will have to report taxable income and pay a 10% federal penalty tax on the earnings portion of the nonqualified distribution. The principal portion is not subject to tax or penalty.

● If you take too little: If your child graduates and does not attend post-graduate school -- or if you do not have another child you can change the beneficiary designation to -- you'll be left with a 529 account that, if used for any other purpose, will incur tax and a 10% penalty. If you have a substantial balance left in your 529 account, consider tapping the account at the earliest tax-free opportunity.

 

Also be sure to coordinate with other family members who may have funded 529 plans for your child to help determine which accounts should be used first.

 

 

¹ 1Investing in 529 plans involves risk, including loss of principal. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state's plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

 

Before you invest in a 529 plan, request the plan's official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses, and the risks of investing in a 529 plan, which you should carefully consider before investing. You should also consider whether your home state or your beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-5-28 Pros & Cons of Target-Date Funds


PROS AND CONS OF TARGET-DATE FUNDS

 

Target-date funds provide investors with the ability to simplify their financial and investment lives.1With target-date funds, your portfolio's asset allocation is automatically rebalanced on your behalf over the years by professional investment managers, generally growing more conservative as the identified target date approaches. Target-date funds are common in 401(k) offerings and make it easier for the employee to choose a more balanced and diversified portfolio.

 

On the surface it sounds like a winning proposition. Nevertheless you should proceed with caution. For some 401(k) plans, conflicts of interest lie under the surface that may affect your investment performance, which I will explain a little later.

 

Unlike lifestyle funds, target-date funds do not require investors to reassess their priorities and transfer money to a different fund as goals approach and priorities change. Generally speaking, the name of each target-date fund includes a specific year, such as "2030" or "2045." All you need to do is choose a fund named for the year closest to the year of your projected retirement. From that point on, professional investment managers make all the investment decisions.

 

Understanding the Investment Strategy

Target-date investments follow what is known as a "glide path." The glide path maps out the investment's asset allocation over time -- the way it is divided between the principal asset classes of stocks, bonds, and cash. How your assets are allocated among these investments is a major factor in determining portfolio volatility and risk.2As you approach retirement, a target-date investment typically reduces its holdings of stocks while increasing its exposure to less risky bonds and cash. Target-date investments provide investors with instant diversification into different asset classes.2

 

A target-date investment's goal is to make the investing process simple. This "set it and forget it" style also makes investors less likely to allow short-term market fluctuations to adversely affect their investment decisions.-

 

The Downside of Target-Date Funds

I would be remiss if I did not also explain to you the real dangers inherent in target-date 401(k)s. Target-date options may be ideal investments for some participants but you should not be lulled into complacency just because you believe your 401(k) "runs on its own". During the housing crash of 2008 and 2009 some 401(k) account holders were shocked to realize that they were heavily invested in mortgage-backed securities. I have seen target-date options that are missing important asset classes entirely, such as small companies or emerging markets. You should remember that the asset allocation within a target-date fund is the educated guess of a fund manager who is aiming to please an "average" retiree. Your personal risk tolerance could be more conservative or more growth oriented than the "average".

 

Moreover, the funds selected by the 401(k) broker may be very expensive, affecting investment performance. Ironically, if you asked employees how much their 401(k) cost them, many would answer "Nothing at all." Last month's Frontline documentary exposed that a typical 401(k) has layer upon layer of fees which can add up to $155,000 for a family over a lifetime. This is because 401(k)s are sold by brokers, and brokers are salespeople. They tend to sell what is most profitable to them. Mutual funds pay brokers revenue-sharing fees in order to be placed on the 401(k) menu, and that cost is passed on to the employees. Consequently a target-date fund could be made up of the most expensive options.

 

While you are working, you will have to live with the 401(k) that your company  provides – you have no choice in that decision. When you change jobs or retire you will have the opportunity to roll your 401(k) into an Individual Retirement Account (IRA) over which you will have greater control. Meanwhile, if you want to be confident that you are making the best choices within your 401(k), consult with your Certified Financial Planner™ for an objective analysis and recommendation.

 

 

1The principal value of target-date funds is not guaranteed at any time, and you may experience losses, including losses near, at, or after the target date, which is the approximate date when investors reach age 65. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus more on income and principal stability during retirement. There is no guarantee that the funds will provide adequate income at and through your retirement.       

Target-date funds invest in a broad range of underlying mutual funds that include stocks and bonds and are subject to the risks of different areas of the market. Target-date funds maintain a substantial allocation to stocks both prior to and after the target date, which can result in greater volatility. The more a target-date fund allocates to stock funds, the greater the expected risk. For further details on the risks associated with investment in a target-date fund, please refer to the fund's prospectus.

          

2Asset allocation and diversification do not ensure a profit or protect against a loss.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-6-11 Investing Overseas - A World Awaits


INVESTING OVERSEAS – A WORLD AWAITS

 

As global economic barriers diminish, investing internationally has become increasingly popular.1Global markets can offer increased potential investment opportunities as well as potential risk reduction by providing additional diversification.2

 

Investing internationally has grown rapidly in recent years. The bias for investing only within our national borders is diminishing as an increasing number of individual and institutional investors boost their international exposure to meet their investment goals. Behind the trend toward international investing are the realizations that the global market can offer attractive opportunities for investment and that diversification abroad can help reduce risk.

 

In 2012, foreign markets represented 55% of the world's investment opportunities. It is estimated that by 2030 the U.S. stock market will represent just 38% of the world market.3

 

Diversification, Returns Are Key Drivers

 

The quest for diversification and higher returns are driving forces behind the internationalization process. International markets do not always move in sync with the U.S. market -- some may zig while the others zag – global diversification may help offset the effect of downturns in the U.S. market. Investors in international securities may face additional risks, such as higher taxation, less liquidity, political problems, and currency fluctuations but despite these risks, the potential for higher returns and diversification makes these markets attractive to many investors.

 

As investors around the world become more sophisticated and aggressively explore potential investment opportunities, they find that the global arena can offer competitive returns. The MSCI Europe, Australasia, Far East (EAFE) index, which tracks 21 major world markets, posted a 9.91% annualized rate of return for the 30 years ended December 31, 2012, compared with the 10.81% annualized return of the S&P 500.4This difference in returns is due in part to differences in economic and market environments in countries around the world.

 

Special Risks

 

International investing does present unique risks and considerations. One of these is foreign currency fluctuations. A U.S. investor's foreign-investment return depends on both the local currency's exchange value against the U.S. dollar and the stock price in the local currency. For U.S. investors, currency losses could also stem from a rise in the dollar's value against the currency of the foreign country they are investing in. In the past, currency fluctuations have tended to balance out over extended periods of time, although there are no guarantees this will always be the case. Maintaining a long-term perspective and diversifying international investments can help minimize these risks.

 

 

1Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors.

 

2Diversification does not ensure a profit or protect against a loss.

 

3Sources: Morgan Stanley Capital International (1970); Standard & Poor's/Citigroup (2012). 1970 (estimated) market cap shares are based on weights in the MSCI World Index. 2012 market cap shares are based on weights in the S&P/Citigroup World Equity Index. 2030 estimate based on the relative growth rates of the weights since 1970. Index performance is not indicative of the performance of a particular investment, and past performance does not guarantee future results. Individuals cannot invest directly in any index.

 

4Sources: Standard & Poor's; Morgan Stanley Capital International. Based on total returns of the MSCI EAFE and S&P 500 indexes in U.S. dollars. The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. The EAFE is an unmanaged index generally considered representative of the international market. Index performance is not indicative of the performance of a particular investment, and past performance does not guarantee future results. Individuals cannot invest directly in any index.

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

2013-6-24 Rising Interest Rates


RISING INTEREST RATES

 

Last week the Dow Jones Industrial Average fell by over 3% in response to Federal Reserve Bank chairman Ben Bernanke's announcement that he intends to "taper back" his monthly purchases of $85 billion of bonds which have kept interest rates at historic lows . This has fueled talk in the media about a return to recession or sluggish growth.

 

The other factor in the market dip was China's decision to tighten credit. Its government has been concerned about runaway growth. Rather than take the course of creating stimulus like the U.S. has done, it has opted for the more difficult but possibly more lasting path of economic reform.

 

Ironically, the actions by the Fed and China are sound long-term decisions and indicate that the global economy is doing better, not worse. Bernanke needs to allow interest rates to return to normal levels or risk sparking inflation, which can be even harder to control than recession. Now that we have seen the best housing starts in six years, record highs for the stock market, improving employment numbers and corporations sitting on more than a trillion dollars in cash, it would be hard for the Fed to justify a continuation of risky quantitative easing.

 

China's effort to create more sustained and planned economic growth also makes sense. Unchecked growth can lead to speculation, a series of booms and busts, more corruption and a greater separation between the ultra-rich and the greater population.

 

When interest rates increase, stock prices tend to take a temporary dip. Many economists have estimated that when interest rates return to normal levels, indices like the Dow Jones Industrial Average and the Standard and Poors 500 might fall about 8%. However, these indices are not diversified and represent only one asset class out of fifteen. A globally-diversified and balanced portfolio using all fifteen asset classes might fall 2%. Even this reduction is likely to be temporary. Many economists anticipate that 2014 will show the best U.S. growth since 2005.

 

The other impact of rising interest rates is on bond prices. When interest rates go up, bond prices tend to go down. Long maturity bonds (those with maturities of five years or more) are usually the most affected. Very short-maturity bonds (two years or less) are more appropriate at this time because these bonds are the least affected by rising interest. Bonds are critical to the stability of a balanced portfolio because when stocks go down, even short-maturity bonds tend to go up and provide downside protection.

 

A well-rounded portfolio may be your best weapon against rising interest rates. The key is to consider your time frame, your anticipated income needs, and how much volatility you are willing to accept. Work with your Certified Financial Planner™ to construct a portfolio with the mix of investments with which you are comfortable.

 

Bonds -- Historically, investors have turned to shorter-term corporate and government bonds for protection in rising-rate environments.¹There are two types of bonds that receive a lot of investor interest when inflation starts to rise: Treasury Inflation-Protected Securities (TIPS) and I Savings Bonds. Both TIPS and I bonds are types of fixed-interest rate bonds whose value rises as inflation rates rise.

Domestic Stocks -- Although past performance is no guarantee of future returns, historically, stocks have provided the best potential for long-term returns that exceed inflation.²An analysis of holding periods between 1926 and December 31, 2012, found that the annualized return for a portfolio composed exclusively of stocks in the S&P 500®index was 9.90% -- well above the average inflation rate of 2.98% for the same period. The results are almost as good over the short term as well. For the 10 years ended December 31, 2012, the S&P 500 returned an average of 7.10%, compared with an average inflation rate of 2.41%.³

International Stocks -- During the same 10-year span that ended December 31, 2012, the Morgan Stanley Capital International (MSCI) EAFE, which is composed of established economies such as Germany and Japan, outpaced the S&P 500 with an average return of 8.70%. The MSCI Emerging Markets index -- which tracks developing world economies such as Brazil and China was even more stellar, returning an average of 16.89%.5

 

Remember, diversification does not ensure a profit or protect against a loss. Consult your Certified Financial Planner™ to discuss your specific needs and options.

 

¹ Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

² Investing in stocks involves risk, including loss of principal.

³ Standard & Poor's; U.S. Bureau of Labor Statistics. The S&P 500 is an unmanaged index. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

4 Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity, and the potential for market volatility and political instability.

5 Morgan Stanley. The MSCI EAFE and MSCI EM are unmanaged indexes. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

 

 

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

EDUCATIONAL WORKSHOPS


 

2018 SCHEDULE 

 

YOUR RETIREMENT CHECKLIST AND LTC/LI HYBRIDS

Saturday, July 14, 2018

10:30 a.m. - 12:30 p.m.

La Canada Flintirdge Library

4545 N. Oakwood Ave.

La Canada Flintridge, CA 91011

 

YOUR RETIREMENT CHECKLIST AND LTC/LI HYBRIDS

Saturday, July 21, 2018

9:00 a.m. - 11:00 a.m.

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

INVESTING AFTER AGE 70.5 AND RMDS

Saturday, September 8, 2018

9:00 a.m. - 11:00 a.m.

South Pasadena Library Community Room**

1115 El Centro Street

South Pasadena, CA  91030

**this activity not sponsored by the City of South Pasadena or the South Pasadena Public Library

 

INVESTING AFTER AGE 70.5 AND RMDS

Saturday, September 22, 2018

9:00 a.m. - 11:00 a.m.

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 


Contact Us

300 North Lake Avenue, Suite 920
Pasadena, California 91101
Phone: (626) 449-7783
Fax: (626) 449-7785
Email: info@kondowealthadvisors.com

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