Steer Clear of These Retirement Mistakes!

Courtesy Library of Congress

1. Not paying for independent financial advice. There is no such thing as a free lunch.

2. Investing in something you do not understand.

3. Supporting adult children, when you are unsure if you do or will have enough assets.

4. Lowballing elder-care costs: Helping out aging parents can be costly.

5. Underestimating how much you will need in retirement.

Three little-known facts about 529 plans

Courtesy Wikimedia. Photo by Chad Miller

1. Accelerated gifting. A 529 plan is the only investment vehicle allowing five years of tax-free gifts in a single year — up to $130,000 per beneficiary.

2. Estate tax benefits. All 529 plan gifts and investment earnings are excluded from federal estate taxes due to rise from 35% to 55% next year if the Bush tax cuts expire. 

3. Legacy planning. Multiple family members and friends can give to the same 529 plan account to help create larger college funds and lasting legacies.

Last Minute Tax Commentary

For many, the idea of taking capital gains in 2012 to take advantage of lower tax rates vs. what is coming in 2013 is a winner.

When you combine the proposed capital gains rate change of 5.0% with the 3.8% Medicare surtax, this represents an increase of $8,800 per $100,000 of gain for taxpayers with taxable incomes exceeding $250,000 (married filing joint) and $200,000 (single).  

That is a 58.7% increase in capital gains tax

You could consider selling a major stock position and paying the tax and then buying the stock back if you believe it is rising or it pays a great dividend.  Also, it may be a time to recognize diversification if you have been holding off not wanting to pay taxes. Paying taxes on gains is likely not going to get any cheaper than in 2012 for many years and you have about 13 days to decide!

At my company, we have been diligently working with clients with proactive tax planning all of 2012.

Paid-To-Wait® Model Trades

A crucial part of our portfolio management process is the beginning of the year rebalancing of our model portfolios. During the month of December, the WFG Investment Department performs an extensive review of all portfolio holdings. Along with this review, we consider hundreds of other investment ideas to determine the best mix for the next year.

Last week, we finished executing the rebalancing in our Paid-To-Wait® model portfolio. The Paid-To-Wait® model is designed to achieve an attractive yield while investing in solid, blue-chip companies. The screening process emphasizes companies that have a long track record of both paying and increasing their dividends. The portfolio is designed to have a low turnover.

Following is a list of the trades that were implemented in the Paid-To-Wait® model:

Buys

· Archer Daniels Midland (ADM)

· AFLAC Inc (AFL)

· BlackRock (BLK)

· CenturyLink (CTL)

· Eaton Corporation (ETN)

· J.P. Morgan (JPM)

· Northrup Grumman (NOC)

· Old Republic International (ORI)

· Union Pacific Corp (UNP)

· Walgreens (WAG)

Sells

· Arthur J Gallagher (AJG)

· British American Tobacco (BTI)

· Colgate-Palmolive (CL)

· Campbell Soup Company (CPB)

· First Energy (FE)

· Lockheed Martin Corp (LMT)

· Pfizer (PFE)

· Rogers Communication (RCI)

· Transcanada (TRP)

· Exxon Mobil (XOM)

Investing Lesson: Using the ConVal® process of rebalancing and seeking opportunities can enhance returns!

Waxing Philosophically: The Tale of The Financial Predator

I recently met another victim of the financial predators that it has been my relentless cause over the past decade to expose.

In my 27-year career, I have seen it all.  One of the things that never goes away, because it has been present since the beginning of time…..is the deceptors.  I have written on this topic many times, the Madoffs, the Tom Petters, IPM Realty and Oxford Financial, to name a few.  If you recall, it was yours truly on my radio show 6 years ago that warned Minneapolis radio listeners to run for the hills from IPM Realty, a sponsor on the same station. Three years latter, MN investors had lost $150 million dollars.  I also warned the SEC about Oxford Financial, who was running a Ponzi scheme out of the VanDusen mansion.  Less than two years later, over $200 million was gone and the orgies and other sorted activity that went on in the mansion were revealed.

Financial predators take advantage of the trusting, the well informed and the uninformed.  While they say a sucker is born every day, the financial predator lures their prey with a sweet sucker of lies that sound like the truth.  In the end, the financial predator wreaks havoc on many, ruins lives, causes the trusting to become untrusting...........and eventually either are rewarded with pain for their sins or simply end up living in a van, down by the river, eating government cheese and drinking PBR.  Ayn Rand in her famous novel, "Atlas Shrugged," calls these guttersnipes “looters."

It is lonely at the top for the successful individuals who have clawed their way to achieving success, the honest way.  It is lonely “up there” because the truly successful are under constant attack by the vipers that desire only one thing, to confiscate the wealth of the men and women of honest success, by any means. These priceless few, having trusted in the beginning and along the way, have the scars from the many knives placed in their back.

For these reasons, the men and women of this type typically have a very small circle of true friends, trust few and spend the majority of their time with people that knew them when they were young.

While it is may be lonely at the top, those who have achieved honest wealth often do at the same time achieve great happiness by having meaningful and deep relationships with what I have coined “foxhole friends." Unlike the “looter-fox” with the knife, foxhole friends will jump in front of a knife or bullet for one another.  Ironic isn’t it, the fine line between taking a knife in the back from a looter, not seeing him coming in the dark vs. stepping between the guttersnipes to save the worthy.

In the end, the fate of the looter-fox, guttersnipe and their many brethren is the same. They all meet their maker, are required to atone for their sins and are then cast into the burning fire of hell, where their craftiness is the language by which exchange takes place among the vermin that exist there.

INVESTING and LIFE LESSONS

1. If it sounds too good to be true, IT ALWAYS IS.
2. The world is full of liars and cheats, for which there is no vaccination or cure other than incarceration to prevent them from their perpetrator ways.
3. Never ignore your gut instinct.  Remember that in the movie, “Basic Instinct”, Sharon Stone uses sex to seduce her victim, much like the snake in the Garden of Eden.
4. Do not, at all costs, look the other way when you smell a stench, just so that there is fresh air on the other side for a little while.

Attention to those still willing to listen to annuity pitchmen.  
Visit WFG’s website, http://www.wadefinancialgroup.com/ and click on the Consumer Advocacy tab and scroll down to the bottom. View the full episode from ABCs "To Catch an Annuity Predator." View these videos as often as needed to inoculate yourself.

Are You Living Above, At, or Below Your Means?

Why is it that there are families with household incomes of $40,000 comfortably making ends meet and saving for retirement with no debt or at the worst, with one outstanding mortgage, while others, that make hundred of thousands of dollars, are having trouble keeping their heads above water? The answer: Living outside your means.

Though many individuals feel the need for the finer things in life, it is possible to live at, or even below, your means to improve your life after retirement. Read the article, "The Secret to Living Well on $40,000 a Year," published this week in U.S. News & World Report to see how a father of two was able to support his family at a comfortable level.

Investing Lesson: Though changing your lifestyle may not be ideal, it can and at times should be done. A dollar that you save today, will be a dollar, plus more, that you have for tomorrow.

The Role of "Alternative" Investments

Members of WFG's portfolio management team attended an Alternative Investments forum in Minneapolis this week representing managers from across the country.

Alternative strategies (Managed Futures, MLP's, Commodities, Hedge Funds, etc.) have been available for years but are often both misunderstood and misused by financial advisors. They are too often "sold" as a stand-alone investment vs. part of a well-designed portfolio strategy. In the majority of cases, Alternative Investments carry high initial and ongoing costs and can have sketchy track records.

WFG has been researching Alternative Investments for our 17 years of managing wealth. We pan through all the "sand and dirt" looking for nuggets of gold as part of our ongoing ConVal® investment research process.

We use these strategies both offensively and defensively. The common misperception is that they are only used for offense- to produce greater returns. WFG generally uses these strategies on a defensive basis. In other words, they are used to protect and reduce volatility in our portfolios while generating a given level of target return with a reduced level of risk by their skillful use.

In several WFG models, as well as in our No-Load Mutual Fund, we hold a variety of these assets, such as Managed Futures, Commodities, and MLPs.

INVESTING LESSON: Don't forget that defense wins championships!