Our latest quarterly newsletter discusses more baby boomers having mortgages when they retire; interest rates and laddered bonds; some good personal finance books; and, if you are a holiday baker, take a look at the Handy Tip.
As we near year-end, review your finances to see if there are any moves you’d like such as making a 529 college savings or IRA contribution. While you can extend the deadline for your IRA contribution, the 529 contribution must be made before December 31st to take the deduction on your state income tax for this tax year.
Your prospective college student’s opportunities for financial aid may be affected by either or both parents remarrying. New spouses’ incomes may be factored into financial aid calculations. Starting in 1965, up to four adults’ income can be included in the equation, when both parents are remarried. This has been an unpleasant surprise for many blended families.
We have been long-time members of local chambers of commerce and recently joined the board at the Lindenhurst/Lake Villa chamber. One of the chamber’s best events for small business networking is the Oktoberfest on October 16th. Small business owners from the region are invited; see http://llvchamber.com/llvchamber/wp-content/uploads/2014/10/2Oktoberfest2014.jpg for details.
Are you thinking about retiring to another state? Check Kiplinger’s website for tax information about the states you are considering and even do a side-by-side comparison. Spoiler alert: while Illinois has some retiree-friendly tax benefits, it does not rank as one of the Kiplinger top-ten retiree tax-friendly states. See http://kiplinger.com/tools/retiree_map for more details.
It’s only July but the back-to-school sales will be starting soon. One of the best deals for college-bound teenagers is College of the Ozarks in Missouri. Students there are required to work 15 hours per week in exchange for their tuition. They graduate college with no student or parental loans…and they have work experience. The college can only take about 10% of applicants and is consistently rated one of the top colleges in the Midwest.
If you had sold in May this year (see May 2014 below) you would have missed out on a 2.3% return for the month, nearly half the returns for 2014. The market has continued to reach new highs and many experts think we will see a correction this year. A correction is a downturn of 10-20% and often occurs when markets move up more quickly or dramatically than the economy would suggest. A correction is often considered healthy, flushing out some stocks that rose with the market trend but don’t have the fundamentals to support the higher prices.
“Sell in May, then go away” is a long-time saying for the stock market that suggests moving to bonds or cash from May to October. Many years have seen the market swoon in the summer months…but then again other years have seen market rallies in the summer. Trying to time the market generally causes more losses than gains.
In Illinois, the 529 Bright Start college savings plan can be a good way to save for college for your child or grandchild. If you live in Illinois you may qualify for a state tax deduction and the savings generally grow tax-free if used for qualified expenses such as tuition and room & board. Email firstname.lastname@example.org if you would like an informative paper on this topic.
Warren Buffet, the “Oracle of Omaha”, released his annual letter to shareholders and the iconic investor is bullish on the U.S. economy saying our best days are ahead and anyone betting against the U.S. over the past 237 years made losing bets. Mr. Buffet warns investors not to be swayed by the media pushing buy-or sell arguments. He promotes a buy-and-hold / rebalance approach to investing.
On comparing Exchange-Traded Funds to index funds Mark Hulbert of the Hulbert Financial Digest says that on average ETF investors were more likely to try to time the market than those who invested in traditional index or mutual funds. Those who bought and held traditional funds more often achieved better performance even though the funds may have slightly higher fees. Like stocks, ETFs can be traded all day long and have no minimum investment or holding period whereas index funds trade only at the end of the day and often have a minimum holding period of 3 months and a minimum investment amount. These differences seem to encourage more trading among the ETF crowd.
Best wishes for a happy, healthy and successful 2014! Is creating a financial plan among your goals for the New Year? If so, consider working with a NAPFA-registered fee-only planner. As members of the National Association of Personal Financial Advisors (NAPFA), we take a fiduciary oath to provide advice that is in the client’s best interest. NAPFA planners do not sell products and do not receive commissions; instead we work directly for you, the client. We are not incentivized to promote one product/investment over another. Fee structures vary as do services offered. For example, many advisors’ fees are based on a percentage of the assets they’ll manage for you; other advisors’ fees are based on an hourly rate; some offer retainer services. There is no right or wrong fee structure; it’s just a matter of deciding what’s right for you. Go to www.NAPFA.org to search for an advisor near you.