Timing is Everything?

Too many “small” investors try to time the stock market. They do not realize that investing in the market is not gambling. That is, I feel lucky today, or, time to cash in. If they would heed the words of Warren Buffet then they would not lose. Buffet states “when investing in the stock market think of it as if you were buying an entire company!” So, if you bought, say, an ice cream shop and the first 3 days it rained and poured and no one came in… would you sell the shop since the numbers looked bad for a few days… of course not. Then invest by doing your research, buy at a discounted price and as Buffet says hold on forever.

Countless study after study has shown the small investor who tries to time the market loses out. In the 10 year period January 2004 to December 2013, according to Morningstar, investors underperformed the average mutual fund by 2.5%. One big reason for the gap between investor returns and total returns is that few investors stay invested for 10 years. It is not timing the market… it is time in the market. Investors tend to get in and out of asset classes at the wrong time.

Individual investors are seen as a lagging indicator, pouring money into areas of the market after they have seen their biggest run up, and, selling out after the retrenchment.

An example, investors bailed out of stocks in 2009, at the bottom, and went into bonds, alternative investments and commodities… just as the stock market began what is now one of the strongest bull runs in history.

On the other hand, bonds, alternative and commodity funds have floundered since 2009. In 2012, $93 billion left the stock market and missed the market’s 35% rise in 2013. At the end of 2012 $101 billion went into intermediate bond funds; this category ended 2013 with one of the worst returns in the past 40 years.

How people make decisions in picking, say, a school, hospital, car or restaurant, is very detailed and unemotional. If they did the same with investments, then, they would not make the same stock market mistakes over and over again. Funny, if an investment goes up strongly over the past 3 years to an all time high, then, the masses want to get in at the top. Yes, I hear the old adage at the market top…Smart money always sells to dumb money!

For the majority of 2009 through 2012 most investors were scared of the market. As the market hit all time highs in 2013 they put over $70 billion into equity markets. Global equity allocation is at 58% which is way above the 20 year average of 50%.

Watch out below!

Here is a little trick for you to do to gauge the market… ask 30 of your family members, coworkers or friends what they think the market will do in the next 9-12 months. You will see a consensus. Then do the complete opposite of what they are doing… and, you will be wealthy beyond your wildest dreams.

Friends, family, neighbors and merchants in the town I live in all know what I do for a living. They all ask me what I think will happen in the market. Before I can answer they pontificate their ideas. I actually monitor the results. Funny, in 2009 I said to friends and neighbors that the market was “on sale.” Yet 95% said they were selling everything. Between Thanksgiving and Christmas of 2013 as the market hit new highs these same people were putting everything in the market (near the top).

As a wise mentor always taught me… buy low… sell high.

Discipline or Regret!

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How Congress Is Peddling IRA/401K Snake Oil

Most Americans who are concerned about preparing for retirement are lured into contributing pre-tax dollars into 401K plans or tax-deductible contributions into IRA’s. Such “Qualified Plans” only give you tax-favored advantages during the contribution and accumulation phase of your retirement account. What about the most important phases – when you withdraw the money for retirement income or transfer any remaining funds to your heirs? Has anyone told you “The rest of the story?”

A couple filing a joint tax return with a taxable income in excess of $73,800 will be in a 34% marginal tax bracket (including state tax). If they were fortunate enough to both qualify for deductible contributions to their IRAs, they would save $1,360 a year in taxes on a total contribution of $4000 a year. However, most retirees will pay back every dollar to Uncle Sam that they saved in taxes in the first 18-24 months of their retirement. In fact, the average retired couple will pay 8-12 times the taxes during their retirement years than the taxes they saved during their contribution/accumulation years.

One of the original IRA/401K tenets held that deferring tax until retirement was advantageous because funds would likely be taxed at a lower rate. That is no longer axiomatic. You may well spend retirement in the same or higher bracket if you accumulate a respectable retirement nest egg. In fact, tax rates will likely rise in the future. So why postpone the inevitable and compound the tax problems?

Is there a way to “Have your cake and eat it too?” Through proper planning, a homeowner may safely utilize an equity retirement plan that may provide tax advantages during the contribution and accumulation years, but more importantly, you may enjoy tax-free income during the retirement years and transfer any remaining funds to your heirs tax-free. This strategy can increase your net spendable retirement income by as much as 50%! There are strategies that the wealthy use to enhance their wealth. Why not do what the wealthy do and super-charge your wealth building.

To understand how to determine if participation in a Roth IRA, traditional IRA, 401K plan or a better tax free program is wise in your circumstances contact us at founders@fgmci.com.

          Picture of Paul Ferraresi

          Paul E. Ferraresi,
          President of Founders Group

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Tax Time

The year 2013 has come and gone. A new tax law became effective in January 1, 2013. All the new taxes are now payable by April 15, 2014. All the screams you will be hearing are people seeing their new higher taxes. Some highlights:

    • A 3.8% surtax on net investment income for joint returns over $250,000 and singles over $200,000

    • Itemized deductions and personal exemptions phase out for joint filers above $300,000 and singles over $250,000: Above $450,000 for joint filers ($400,000 for singles) is a 39.6% rate plus 20% capital gain rate (not 15%) plus the 3.8% surtax. [Tell me again why you voted for those that raised your taxes?]

    • One can still use up to $3,000 of net capital losses to offset investment income subject to the 3.8% tax

    • Real Estate professionals who spend 750 hours/year and half of personal service time in real estate business can escape the 3.8% surtax. This will require regrouping

    • New health care tax of 0.9% Medicare tax on wages and self employment income above $250,000 for joint filers or $200,000 for singles. This will be charged on all bonuses, commissions, taxable gifts from employers and amounts deferred in non qualified deferred comp plans

    •The threshold for itemized medical deductions has risen from 7.5% to 10% of adjusted gross for those 64 and younger. It stays at 7.5% for those 65 and older. (Now with the higher deductible and premiums under Obama care this should be an easy threshold)

    •A new way to calculate home office deduction will require 2 calculations to find the most advantages. The maximum is a $1,500 deduction. [Once more, why did you vote for those that raised your taxes]

There is a simple way around this: A flat tax that everyone pays. DO NOT count on this happening since how would your legislator get “lobby money contributions” to build up their wallets while your wallet empties?

Another way around this, we have been helping our clients for over 40 years structure investments so they will have tax free income that they can never outlive. This income does not even show up on their tax returns and our clients do not care about these tax changes since it does not affect them.

If you would like to learn if you qualify for a program like this… Contact us for a no cost, no obligation discussion at Founders Group: 713-871-5919 or Email us at founders@fgmci.com.

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The Bad Old Days

It is tax season. The average person has seen their taxes go up. Those in the upper income level have seen their taxes skyrocket.

At this time of year I hear people complain and say… “I have had it. This year I am going to do something about lowering my taxes.” Funny thing is they have been saying that for years and they do not do anything about it. Why? Procrastination. (Sounds a little like you?)

Congress placates everyone from mid March to mid April claiming they want to simplify the tax code and make the tax returns easier to complete. They never do anything about it. Again, Procrastination.

The media, what a laugh, on April 14th each year presents last minute tax saving ideas. Procrastination again.

Trust me all of this is talk and is not planning. Your tax planning should be completed by August to September of each year… not after the year has passed!

Below is a link to a recent Barron’s article. You can see what tax rates will be increasing to for everyone. Take heed! I remember when the maximum tax rates in the U.S., in the bad old days, were at 91%. So, the stated article projections are not that far off. Take a deep breath!

When you are done reading the article you may want to contact us for professional assistance to lower your taxes in the future. By the way… We do not procrastinate in helping our clients lower future tax rates. The procrastination disease is the number one reason for financial failure.

Contact us at 713-871-5919 or email: founders@fgmci.com

Bad Days Are Back Article:
http://online.barrons.com/article/SB50001424053111903713804579395041530162468.html

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NEFE Survey Finds 1 in 3 Commit “Financial Infidelity”

(This is an excerpt from NEFE digest March/April 2014)

According to a January 2014 NEFE-Harris Interactive poll, one in three adults who have combined finances with a romantic partner have hidden some aspect of their finances, such as a blemish on their credit history, a purchase, or even a bank account.

The survey dug deeper into why such deceptions occur, finding that 35 percent of respondents who admitted to a financial infidelity did so because they believe that some aspects of their finances should remain private, even from their partner, while 24 percent did so because they knew their spouse or partner would disapprove. Sixteen percent said that they were “embarrassed or fearful about their finances and didn’t want their partner to find out.”

“The financial infidelity poll is a springboard to a more serious conversation and an opportunity to give people tools that can help, such as NEFE’s Life Values Quiz.”

The LifeValues Quiz, found at www.SmartAboutMoney.org help individuals and couples identify the unique values that drive their financial decision making and reveal trouble spots that could lead to financial infidelity.

“This is a financial topic that isn’t so financial,” Golden says. “It’s about discussing an important aspect of family dynamics.”
NEFE first conducted this survey in 2010 in partnership with Forbes magazine. Since then, the story has made headlines in Bloomberg News and the New York Times. It was featured on Today and was a topic of debate on The Talk.

I think you will find the quiz reveling. To take the LifeValues Quiz, visit www.SmartAboutMoney.org and select Tools & Resources.

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HOW TO DOUBLE YOUR SOCIAL SECURITY BENEFITS WHILE REDUCING YOUR TAXES BY 80% IN RETIREMENT.
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