Paul Ferraresi

In less than 11 months from now a new Congress will be elected. In addition, you may have the same or a new administration in the White House.

What will the economy be like? What will be the “mood” of Americans? Monetary policy has been used up, and only fiscal policy tools remain. A major fiscal tool is tax policy.

The present tax law is set to expire on December 31, 2012. Will politicians kick the can down the road again? Everyone knows that there are a few major changes that need to be done to have the U.S. economy thrust forward with dynamic vigor. One aspect that must be noted: Any tax policy change must be cemented in place for at least five years. Any prudent individual or business cannot do any worthwhile planning or changing behavior with any shorter time period.

Here are a few changes that will transpire when the extended “Bush tax cuts” expire. Remember, it was the largest tax cut in history when first implemented and got us out of the 911-tech stock implosion of 2000-2003. Consequently, if it is not extended…it will be the largest tax increase in history. Here are just a “FEW” of the changes:

• All tax rates basically go up around 5%. The 10% bracket is eliminated and will be at 15%.
• Dividend rates will go from the present 15% rate to your ordinary tax rates.
• Capital gains rates go from the present 15% rates to rates of 25%. (Gee, I wonder what this will do to your stock market investments? DUH!)
• Elimination of the tax credit for having children. (This will hurt the unwed parents and illegal immigrant parents.)
• The marriage penalty tax will go back into effect. (This will encourage married people to not stay married.)

Since it is obvious that you will be taxed more in every area of your life, doesn’t it make sense to develop a plan to place your monies into programs that will never be taxed? We are here to help at any time.

Come November 2012 it may be beneficial to heed the words of the former Mayor Daly of Chicago, “Vote early and vote often.”

Most people do not want to think about or discuss Estate Planning. The definition of Estate Planning is the process of getting resources to where you want them to go with the least cost and least problem.

This process includes risk management and a review of all your insurance coverage — life, disability, liability, long-term care. Also reviewed are tax planning, cash flow analysis, and much more.

You should not just look at your own life, but, you must consider the possible caring for elderly parents, multi-generational relationships, and other personal planning issues.

Most people think that simply drafting a Will solves all these problems. Far from it. Wills are not the best vehicle for carrying out one’s wishes.

In addition, one should do at least an annual estate review with their advisor to make sure that beneficiary designations are current and intended distributions match your current intentions.

With your advisor you should discuss how you want your finances handled if you cannot function or after you pass away.

To most people their estate is simple, but, I have seen fortunes wasted by people who do not understand what the laws are and how they can and will affect your loved ones. Let me give you an example…. If you are married with children, and, you do NOT have a Will…where do your assets go? Most people think all of it goes directly to the surviving spouse…. AH-OO-GA! Wrong Answer! See your advisor for the answer!

How much risk should you take with your investment portfolio? When I sit with a new client and I ask them how much risk they want to take they tell me… Paul, I am a “REAL” conservative investor. Then, I find that they have placed all their monies in Pork Belly Futures… Whew!

So, what is conservative for one person is aggressive for another. In the professional world of investment management, advisors do not use words to describe risk; rather, they use detailed analytical systems. We use an educational program for all clients that entail the development of an Investment Policy (20-25 pages in length). From there we can create a customized Asset Allocation Plan. Then, there are NEVER any shocks, surprises or disappointments for the client. They know exactly what to expect in good and bad markets.

Here is a non-scientific question to risk tolerance that I use on clients to add some levity to our meetings (and it does give me a general look at their risk level). Mr. & Mrs. Jones if you were to come in to me with $100,000 to help you invest, and, one month after you made the investment it dropped in value to $78,000. Tell me… how would you feel? (What is your answer?).

None the less everyone wants a quick fix or answer, so, here is a short quiz for you. Be honest with yourself. DO NOT look at the answer guide ahead of time.

Enjoy…

The following questions can help you gauge your risk tolerance. Add up the points from your answers to the questions below: There is no right or wrong answer, just what’s right for you.

1. Protecting my original investment (the principal) is more important than achieving significant growth. Do you:
   1. Strongly agree? 0
   2. Agree? 4
   3. Disagree? 11
   4. Strongly disagree? 16

Points_____

2. Which of the following investment strategies best suits you?
   A. One that seeks to avoid loss 0

   B. One that has potential for both moderate gain and moderate loss 9

   C. One that maximizes potential gain regardless of the potential for loss 18

   Points_____

   3. You own a stock fund that has lost 15% of its value over the past year, despiteprevious years of solid performance. This loss is consistent with those of similar funds during the past year. At this time would you:
      A. Sell all of your fund shares? 0

      B. Sell some-but not all-of your fund shares? 4

      C. Continue to hold all your shares? 9

      D. Buy more shares to increase your investment in the fund? 12

      Points_____

      4. Inflation can greatly reduce the real rate of return on investments over time. Which of the following best describes how you feel about investment risk with respect to inflation? I am willing to accept:

      A. Significant potential for loss and high volatility

      in trying to greatly exceed the rate of inflation 18

      B. Moderate potential for loss and lower volatility in trying to exceed the rate of inflation 9

      C. Minimal potential for loss, although my investment may only keep pace with inflation 0

      Points_____

      5. Which of the following three hypothetical investment portfolio returns over a one-year period are you comfortable with?

      A. A potential return of 6% a year with a slight chance 0

      of losing value

      B. A potential return of 10% a year with a moderate chance

      of losing value 9

      C. A potential return of 14% a year with a significant chance

      of losing value 18

      Points______

      6. Which of the following hypothetical portfolio average annual returns over a three-year period are you

      most comfortable with?

      A. Between 0% and 10% 0

      B. Between -5% and 18% 9

      C. Between -10% and 26% 18

      Points______