Aug 03 2011
Many people have a difficult time selecting a financial adviser or firm to manage their hard-earned money. It can be a very confusing and long process. In the following video, David Young, founder and owner of Paragon Wealth Management, discusses the advantages and benefits of investing with a smaller investment firm rather than a larger investment firm.
Jul 26 2011
The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.
To view full article, visit Figuide
If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.
There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.
When It’s a Good Idea
If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).
You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.
In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.
When It’s a Bad Idea
If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.
Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).
Conclusion
So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.
Jul 20 2011
The following article discusses what a custodial IRA is and how it can be beneficial in helping your children learn about investing. The knowing what a custodial IRA is, your can help your children start a nest-egg of their own for retirement.
To view full article, please visit Military Money.
Would you like to help your children accumulate more than $1 million in tax-free retirement assets with a relatively small investment?
You can do exactly that with a highly effective but often overlooked financial strategy: Open a Roth IRA for your child!
A child can open an IRA (traditional or Roth) only if he or she has legitimate “earned income” through self-employment or W-2 wages. This money can come from typical jobs such as cutting grass, delivering newspapers, bagging groceries or working at a fast-food restaurant. A child that performs real work or duties in a family business- data entry, filing, cleaning the office-also qualifies. (It is a good idea to pay any children working for the family business periodically- say, monthly- by check and to keep a time sheet.)
A child, regardless of age, can use this income to fund an IRA subject to the lesser of $5,000 or 100 percent of earned income. As with all IRAs, you have until April 15 of the following year to put the money into the account.
Some children may be reluctant to turn over their hard-earned babysitting or life guarding money to mom and dad to fund an investment they won’t be able to use for many years. Fortunately, parents and grandparents can give kids some or all of the IRA funding money as gifts, allowing the children to keep and/or spend what they make. Any money gifted in this manner must be aggregated with any other gifts and are subject to the $11,000 annual gift exclusion.
If the child is a minor, the account must be set up as a “custodial IRA” with the child’s social security number on the account but an adult parent or guardian shown as the custodian. Once the child turns 18, the custodial feature may be removed.
How powerful is this savings tool? Let’s look at two examples:
Example #1: Johnny, age 13, has a part-time paper route and earns $1,400 per year. His parents open a custodial Roth IRA for Johnny and fund it through gifts limited to the amount of his earned income each year. If Johnny keeps the paper route until age 18 (five years of funding), continues to earn $1,400 per year and never puts another dime into the Roth IRA, it will grow to $305,787 by the time he turns age 65(assuming an eight percent annual rate of return). Not bad for a total investment amount of only $7,000!
Example #2: Sarah, age 15, works for her mother, a real estate agent. She helps her mother with data entry and promotional fliers. Her mother can pay her what she would reasonably pay an outside employee for the same duties (say, $15 per hour). Sarah works 300 hours each year until age 18, earning $4,500 per year. Sarah contributes $2,000 to a custodial Roth IRA and her mother matches that with a $2,000 gift for the total of $4,000 per year. In four years, she will accumulate $18,024 in her Roth IRA (assuming an annual eight percent average annual rate of return). If Sarah continues to work for her mother through college (an additional four years) and make additional contributions, the account will grow to $42,546. If she stopes and lets the money grow tax-free until age 65, she will have amassed $1,164,341. If she continues to contribute $4,000 per year after college until age 65, she will have a whopping $2,482,673-all available tax-free!
First, remember that the money must come from legitimate earned income, so it will be difficult for a very young child to qualify unless he or she is a child actor or model.
Second, some financial institutions are unfamiliar with these rules and may be hesistant to open a custodial IRA or ask for verifiable W-2 income. If the bank, brokerage house or mutual fund company seems reluctant, as to speak with a manager to resolve the issue. If they still refuse, take your business to another institution, since there are plenty that will help you.
Third, since the time frame is so long on this investment, use a growth-oriented stock mutual funds for maximum long-term appreciation.
Roth IRAs for working children are an immensely powerful wealth-building tool and an excellent way to teach kids about money and investing. If your situation qualifies, open one today!
Jun 22 2011
Photo taken from Wall Street Journal Online
Fiduciary responsibility, in simple terms, is the legal responsibility to put your clients’ needs ahead of your own. Some estimates claim that only 15 percent of investment advisers have this responsibility. Paragon Wealth Management has fiduciary responsibility, and we recommend that you only work with advisers who do.
Below are excerpts from an article taken from the Wall Street Journal Online. In the past investment advisers were the only ones to have fiduciary responsibility, but Wall Street has agreed to put its brokers under the same criterion.
Fiduciary Duty Hits the Street- Sort of
August 31, 2009
Written by Jane J. Kim
For years, most investment advisers have been deemed fiduciaries under the Investment Advisers Act of 1940.
Investor groups say the existing fiduciary standard has been defined and upheld by over four decades of legal precedence, including a 1963 U.S. Supreme Court case, Securities and Exchange Commission v. Capital Gains Research Bureau.
“If you have a precise definition of fiduciary duty, what that does is exclude a number of features of fiduciary,” said Rex Staples, general counsel at the North American Securities Administrators Association Inc., which represents state securities regulators.
Trying to define what constitutes a fiduciary duty is like trying to define the duty not to commit fraud – any application of it depends on the client’s particular facts and circumstances, say adviser groups. Proponents say a fiduciary standard can’t be defined given the complexity and changing nature of the business.
“For years, they’ve opposed the fiduciary duty,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. “Now they’ve embraced it in order to gut it.”
Still, Wall Street’s support of a fiduciary standard boosts the odds that it will eventually apply to brokers. Now, the fight is over the standard itself.
Investment advisers want to extend the current standard under the Investment Advisers Act to all financial professionals who give investment advice, while the brokerage industry wants a new, federal standard to apply to any broker-dealer or investment adviser that provides personalized investment advice to clients.
Under the Treasury’s proposed Investor Protection Act of 2009, the SEC would have the authority to “promulgate rules” establishing a fiduciary duty. SEC Chairman Mary Schapiro said she favors a fiduciary standard that would that would be applied uniformly to all financial professionals.
Jun 07 2011
The following article discusses the important duties and responsibilities of financial fiduciaries related to Employee benefits plans in the workplace.
For the entire article, visit U.S. Department of Labor
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.
These responsibilities include:
Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
Carrying out their duties prudently
Following the plan documents (unless inconsistent with ERISA)
Diversifying plan investments
Paying only reasonable plan expenses
The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.
Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. For example, if a plan official named in the document changes, the plan document must be updated to reflect that change.
Diversification
Another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decision.
May 31 2011
The following article discusses who is considered a fiduciary and what some of the investment fiduciary responsibilities include.
visit Investopedia to view full article
So you volunteered to serve on the board of your local charity or other organization and you consider yourself especially lucky to have secured a seat on the investment committee. Perhaps you initially had reservations about your new appointment - but if you have a keen interest in the financial world, some investments of your own, you’re a business person, you watch CNBC and you read the Wall Street Journal, you may feel that you’re qualified. However, while this may be a great way to attend investment committee meetings and receive the latest investment research from the charity’s advisor, this job shouldn’t be taken lightly.
Being a fiduciary comes with a certain level of responsibility. An investment fiduciary is any person who has the legal responsibility for managing somebody else’s money. What this really means is that you have been placed in a position of trust and there may be consequences for betrayal of that trust. In this article, we’ll discuss who is considered a fiduciary and what a fiduciary’s responsibilities entail.
Who is considered a fiduciary?
As a member of the investment committee, you may share some of the responsibility with the committee’s investment advisor. If your advisor is a Registered Investment Advisor, he or she does share fiduciary responsibility with the investment committee. A broker, on the other hand, may not. Some brokerage firms don’t want or allow their brokers to be fiduciaries. This uncertainty makes it important to ask the advisor. Ultimately, it is the advisor’s actions that determine whether he or she is a fiduciary. Giving continuous, comprehensive advice is considered acting in a fiduciary role, while simply selling products is not.
Engaging an advisor who is willing to accept fiduciary responsibility is desirable because investment committee members reduce their liability by delegating some of their responsibilities to an expert. However, hiring an expert does not relieve the committee members of all of their duties. They still have an obligation to prudently select and monitor the activities of the expert; therefore, committee members still must understand what constitutes a fiduciary investment process.
A Fiduciary’s Responsibilities
A fiduciary’s main responsibility is to manage a prudent investment process. A prudent process is not as nebulous as it may sound. A fiduciary demonstrates prudence by the process through which investment decisions are managed. This means fiduciaries must have a basic outline for how they go about their responsibilities. In response to the need for guidance for fiduciaries, the nonprofit Foundation for Fiduciary Studies was established to define the following prudent investment practices:
Step 1: Organize
The process begins with fiduciaries educating themselves on the laws and rules that will apply to their situations. For example, fiduciaries of retirement plans need to understand that the Employees Retirement and Income Security Act (ERISA) is the primary legislation that governs their actions. Once fiduciaries identify their governing rules, they then need to define the roles and responsibilities of all parties involved in the process. If investment service providers are used, then any service agreements should be in writing.
Step 2: Formalize
Formalizing the investment process starts by creating the investment program’s goals and objectives. Fiduciaries should identify factors such as investment horizon, an acceptable level of risk and expected return. By identifying these factors, fiduciaries create the framework for evaluating investment options.
Fiduciaries then need to select appropriate asset classes that will enable them to create a diversified portfolio through some justifiable methodology. Most fiduciaries go about this by employing modern portfolio theory (MPT) because MPT is one of the most accepted methods for creating investment portfolios that target a desired risk/return profile.
Finally, the fiduciary should formalize these steps by creating an investment policy statement, which provides the necessary detail to implement a specific investment strategy. Now the fiduciary is ready to proceed with the implementation of the investment program as identified in the first two steps.
Step 3: Implement
The implementation phase is where specific investments or investment managers are selected to fulfill the requirements detailed in the investment policy statement. A due diligence process must be designed to evaluate potential investments. The due diligence process should identify criteria used to evaluate and filter through the pool of potential investment options. The implementation phase is usually performed with the assistance of an investment advisor because many fiduciaries lack the skill and/or resources to perform this step. When an advisor is used to assist in the implementation phase, fiduciaries and advisors must communicate to ensure that an agreed upon due diligence process is being used in the selection of investments or managers.
Step 4: Monitor
The final step can be the most time consuming and also the most neglected part of the process. Some fiduciaries do not sense the urgency for monitoring if they got the first three steps correct. Fiduciaries should not neglect any of their responsibilities, because they could be equally liable for negligence in each step.
In order to properly monitor the investment process, fiduciaries must periodically review reports that compare their investments’ performance against the appropriate index, peer group and whether the investment policy statement objectives are being met. Simply monitoring performance statistics is not enough. Fiduciaries must also monitor qualitative data, such as changes in the organizational structure of investment managers used in the portfolio. If the investment decision makers in an organization have left, or if their level of authority has changed, then investors must consider how this information may impact future performance. In addition to performance reviews, fiduciaries must review expenses incurred in the implementation of the process. Fiduciaries are not only responsible for how funds are invested, but they are also responsible for how funds are spent. Investment fees have a direct impact on performance and fiduciaries must ensure that fees paid for investment management are fair and reasonable.
Conclusion
Through proper execution of the prudent investment process outlined in these four steps, trustees and investment committee members can reduce their liability by being confident that they are fulfilling their fiduciary responsibilities. Fiduciaries should embrace their responsibilities and understand that they will not be judged on the returns of their portfolio, but on the prudence employed in the creation of the returns. If fiduciaries get the process right, they should be able to achieve admirable returns for their organizations. In the end, it’s not whether you win or lose, it’s how you play the game.
May 17 2011
There are many factors in addition to your risk tolerance to take into consideration when it comes to developing your personal investment philosophy. The following bullet points are based on Paragon Wealth Management’s experience actively managing accounts for more than 20 years.
May 03 2011
Learn about investment risk tolerance, why it is important, how to determine it, and more. Dave Young, President of Paragon Wealth Management, explains everything you need to know about risk tolerance.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.
Jan 25 2011
continued from last week…
by Akash Joshi
Visit Financial Express to view the complete article
6. Communication hassles
Wealth managers usually will keep sending you a lot of mailers and documents to keep you abreast of your wealth position. Now, there could be an information overkill situation. However, you need to be clear about where your funds are being allocated and how are they being monitored. And this relationship should be clarified at the very beginning of the association. Moreover, it is prudent to work with those who ensure maximum confidentiality and address your communication needs.
7. Protection
Often enough, wealth management is considered to be just about growing a set capital and then deciding how to distribute these monies. Many times, the aspect of protecting and covering assets and lives is not looked into. And many wealth managers, especially those attached with broking firms, tend to overlook this factor as well, or would include this in the investment basket, by using the unit linked route.
This is a grave mistake. You need to insist to your wealth manager to include the insurance aspect as well. And it is most likely that your wealth manager will actually provide you with some sound advice here. “The commissions from life insurance are quite attractive,” says Nikam.
8. Neglecting succession/estate planning
There have been umpteen cases where the family members of the deceased have been involved in bitter legal wrangles over sharing the estate. And most of this happens because a proper legal will was not prepared. Planning the ‘will’ much earlier will ease much of the tension. Your philanthropic activities can also be scheduled in the will.
Moreover, wealth managers now offer trust services where trusts can be created for various purposes and their execution can be managed by the wealth managers. And trusts can be created even when you are alive and they will be managed according to your wishes and direction.
9. Involving family
Though it comes at the bottom of the rankings, not involving your family in the wealth management process could easily be one of the biggest mistakes. Experts recommend that speaking and sharing your overall plans with your family.
Discussing the life goals helps as the clarity, understanding and alignment of all family members is enhanced and therefore the wealth manager can then set up a solution that best fits your requirements. And with the family members involved, the sense of participation also increases, reckon wealth managers.
10. Overdependence
Lastly, wealth managers are human too and they make mistakes. Being completely dependent on them could be as counter-productive as constantly prodding them with suspicion. However, a healthy sense of accountability must be established where performances are questioned and monitored.
Having looked at all these factors, wealth management can be a rewarding experience that can help you fulfill your dreams and aspirations. It can, as a wealth manager says, enable you to see the fruits of your labour and enterprise be translated into happiness. It just requires some smart diligence.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.
Nov 17 2010
If you are among the increasing number of people who continue to work into their retirement years, keep these tips in mind when planning for your financial future.
Visit USNews to view the complete article
The percentage of persons past the age of 65 who are still employed has risen because of the Great Recession. Even without a downturn, however, there has been a longer term trend of more people wanting to keep working. There is the money, to be sure. But many people stay on the job to retain professional relationships and a degree of social engagement they think will be hard to match in retirement. Much of our personal identity is related to our work; it can be tough to give up a big hunk of self worth along with the paycheck.
Whatever the reason for continuing to draw a paycheck at age 65, here are eight recommended actions that older employees should consider:
1. Watch Your Tax Bracket. The Bush tax cuts expire next year. Even if the Republicans regained control of the House and Senate, keeping the cuts would not be a slam dunk. There is just so much red ink everywhere. So, assume that marginal income tax rates will be rising. Check out the current IRS tax brackets and see where the income breaks are for tax-rate changes. Look at your taxable retirement income from Social Security, pensions and retirement accounts. Understand the impact of employment earnings on your tax bracket. Higher taxes may not drive your employment decisions. But it could make good sense to explore tax-deferred retirement accounts so you can avoid higher taxes and park your earnings until you can withdraw them when your taxable income has declined and you are paying lower rates.
2. Beware of Losing Social Security Dollars. Social Security rules calculate a full retirement age, which is 65 or 66 for most people. If you elect to begin receiving Social Security benefits before your full retirement age (you can start getting benefits when you turn 62), your benefits may be reduced if you also earn outside income.
3. Review Social Security Claiming Decision. If employment earnings reduce your need for Social Security benefits, deferring the date when you begin claiming those benefits may be a smart decision. You are entitled to 100 percent of your benefit when you reach full retirement age. However, for each year you delay, your benefit will rise by 8 percent a year. That’s a nice increase, and it’s adjusted for inflation as well. The longest you can delay and still get higher benefits is age 70, at which point your benefit will be 132 percent of what it was when you turned 66 (assuming this is your full retirement age). Outside income may also influence the way couples approach Social Security benefits. The Center for Retirement Research at Boston College has a useful Social Security Claiming Guide.
4. Seek Higher Investment Returns. Financial planners Carnathan and DeCarolis both say it may be appropriate for employees of retirement age to build a more growth-oriented investment portfolio if they are continuing to work and earn employment income. They are not subject to as much risk of a stock-market decline as a fixed-income retiree who has no other source of income and doesn’t have time to wait for depressed market holdings to recover. However, they stress that asset allocation decisions must reflect a person’s risk tolerance. Even “doing the right thing” won’t seem that way if it runs counter to your feelings. “You can’t make someone do something they don’t want to do,” DeCarolis says.
5. Keep Employer Healthcare Coverage. “Health care is the big reason my clients don’t retire before 65,” DeCarolis says. No wonder. Private health insurance for people in their late 50s and early 60s is very expensive, assuming you can find coverage at all. The health reform law will help here but its provisions don’t take full effect until 2014. In the meantime, keeping employer health insurance is an important consideration in the work or retire equation. Turning 65 and qualifying for Medicare hardly resolves this issue. Basic Medicare has big coverage gaps. So, if you can retain some form of health insurance along with a paycheck, consider yourself fortunate.
6. Play Catch Up With Retirement Accounts. Tax rules generally allow older employees to park an extra $1,000 in tax-deferred retirement accounts. This is on top of existing annual maximum contributions. Assuming you don’t need the current income, plow as much as you can in these tax-deferred accounts. You’ll be storing money you will need in retirement, and lowering current taxable income as well.
7. Keep Good Expense Records. Understanding exactly what you spend is great training for retirement and should be part of your retirement planning. Having such a record will make it easy for you to estimate your post-retirement spending needs and whether you will have enough retirement income to live comfortably. In addition, you might be able to deduct certain employment expenses on your taxes. With more and more people telecommuting, home office expenses can be considerable. Also, if you volunteer, there are deductible expenses that can reduce taxable income.
8. Watch Your Cash Flow. Carnathan says a solid cash flow analysis is a fundamental part of a client’s retirement thinking. He recommends doing scenarios with different time frames, looking out a year, three years, and five years. This helps clients better understand the merits of continuing to work. Equally important, it moves them into a life transition process. This process is really a more accurate description of retirement than a specific trigger date. “People tend to gravitate toward a specific scenario,” he says. “From there, we go on to figure out the best mix of assets” that will support their longer-term income needs.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.
|
DOWNLOAD "HOW TO SELECT A FINANCIAL ADVISOR"