JAS Financial Services, LLC

Tax calculator shows impact of federal, state and local obligations.

Joseph — Wed, 16 May 2012 16:23:20 +0000

AICPA’s tax calculator provides estimates of total federal, state, and local tax obligations. It is designed to increase awareness and give a clearer picture of how various taxes impact an individual. It is not tax preparation software. By having a better understanding it will aid in making better financial decisions.
http://www.totaltaxinsights.org/

Do you think you can avoid the recent mistakes of J.P. Morgan?

Joseph — Sat, 12 May 2012 22:33:41 +0000

There has been a lot written about their recent losses. From my perspective, Jason Zweig’s May 11^th
article in The Wall Street Journal identified the issues for individual
investors. Being aware of the findings
of behavioral finance can help the individual to maintain a health perspective.
“The literal meaning of the word ‘invest’ –from the Latin vestire, to clothe or dress-is to wrap oneself up in
something. Experiments…have shown that
people who bet on an outcome become up to three times more confident that it
will occur than people who didn’t put up any money.”
Zweig discusses the philosophies of Richard Feynman, a Nobel Prize-winning
physicist. “The Feynman principal…is…you
must not fool yourself-and you are the easiest person to fool,”
“for investors, the bigger the commitment , the more certain they become that
they must have been right to make it-and the harder it becomes to let go.” “Not trying to disprove your own beliefs is
an especially dangerous deception. …You…can fool yourself by placing too much
faith in the findings of…experts.”
The article suggests some things you can do to avoid deceiving yourself. You can set target values and dates to review
the holding. Revaluate the holding at
those dates and values to see if it has met your expectations. Seek out the opinion of others. Do not rely on only one source. Find different sources to test your
thinking. You are probably wrong if you
ridicule someone else with a different opinion.
“Above all, remember that the smarter you are, the more easily you can fool
yourself.”
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“Don’t tax you, don’t tax me, tax the fellow behind the tree!”

Joseph — Thu, 03 May 2012 21:09:24 +0000

The above quote of Senator Russell Long of Louisiana was from Eric Pianin’s April 27, 2012 article in The Fiscal Times. The article is a good discussion of how difficult it will be to achieve tax reform. “…once…tax breaks become part of the law, it is like pulling teeth to get them out of there. “ Many of the largest deductions are the most popular. These include deductions for: home real estate taxes, employer-provided health insurance, home mortgage interest, capital gains rates, and contributions to qualified retirement plans such as 401(k) plans. These will be politically difficult to eliminate.
Treasury estimates that the deductions and credits total about $1.3 trillion. Eliminating these deductions and credits would increase taxes collected by $1.3 trillion. Some of the proposals would reduce rates to reduce the taxes collected. This would result in the same net tax collected. For those that incur expenditures that are now tax deductible or qualify for a credit will see their household expenditures increase.
There seems to be agreement that our business tax rates need to be reduced to improve our global competitive position. This would also reduce the taxes collected.
Tax planning for 2012 will require more effort because of the many possible changes to the tax laws. There is not enough time and energy to resolve these issues before the election. It is not possible to know what the lame duck Congress will do. Start to identify your tax strategies in September. Separate the strategies that can be implemented by December 31, 2012. Establish a time line on when each strategy needs to be made. This will permit you to know a when a decision needs to be made that can be completed in 2012
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Are you looking to increase yields?

Joseph — Sat, 28 Apr 2012 20:21:54 +0000

There seems to be an increasing number of articles about how to increase returns. Too many of the articles do not discuss the additional risk. The March 2012 edition of the Morningstar Advisor looked at Tactical Funds. Their conclusion in 2010 when they previously studied this topic was that “…these funds generally failed to deliver better risk-adjusted returns, or downside protection, than a traditional index portfolio split 60%/40% between stocks and bonds, respectively.” This study, as of December 31, 2011, “…found that very few tactical funds generated better risk-adjusted returns than the Vanguard Balanced Index’s over the extended time period.” That is, their”… extended study found scant evidence that these funds delivered on their goal of delivering competitive returns with a smoother ride.”
Since their study only found a several tactical funds were successful in reaching their goal. investors should be selective in considering such funds.
Another approach was the subject of an article in today’s The Wall Street Journal. The article discussed some of the risks with different approaches. The discussion consider retired investors. “The best places to look for yield and safety…are long-term, high-grade bonds and certificates of deposits…” “But long-term holdings pose problems for investors in their 70s or 80s.”
High quality bonds or CDs with “death puts” are getting increased interest. The yields are significantly higher than shorter term investments. “The biggest risk is that the issuer …defaults”. Another risk is that some of these bonds are callable. The put option on some issues are effective until the bond is held for 6 or 12 months.
When looking to increase your yield be sure to do your due diligence. You should be sure to understand the risks. Of course make sure that they are consistent with your needs.
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Do you consider Exchange-Traded Notes (ETN) the same as Exchange-Traded Funds?

Joseph — Sat, 14 Apr 2012 15:46:57 +0000

Samuel Lee, an analyst at Morningstar, the research firm is quoted in Jason Zweig’s column in today’sThe Wall Street Journal. “When it comes to expenses, I consider all ETNs to be suspect unless you’ve combed through every page of the prospectus.” “Don’t even try that unless you have a couple of hours, a magnifying glass, a financial calculator and a few pints of strong coffee.”
One of the basics in inveting is that you should only invest it what you understand. ETF are increasingly being used in portfolios. There is concern that too many people think ETNs are the same as ETFs.
Costs are one factor that is different. The costs are generally higher and more difficult to discover than ETFs and mutual funds. Some are significantly higher. The ”…reported expenses, as high as they sound, might understate the costs.”
Tax efficiencies is one of the advantage of ETFs. The taxation of ETNs is not as clear. The income of many ETNs maybe ordinary income, taxed at ordinay income rates rather than lower rates that apply to capital gains.
ETNs can trade at higher premiums than ETF. Large ETFs tend to generally trade very close to the underlying index. ETNs are ”generally…structured as borrowings…regulated like bonds…”
If you are considering ETNs and think you understand ETNs, make sure you understand how they would help your portfolio. That includes a reasonable expectation that risk is being compensated with higher returns.
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Thinking about buying a “Dividend-Fund”?

Joseph — Mon, 09 Apr 2012 18:56:17 +0000

Many commentators are telling investors to invest in a mutual fund or an exchange-traded fund (funds) that invests in companies that pay dividends. Statistics indicate that there is a rush to buy such funds. Jason Zweig gives some of the reasons in his April 7^th article. He cautions investors not to mistake such funds for bonds.
“When you buy bonds you collect interest and get your money back (not counting inflation) when the bond matures.” The values of stocks of dividend paying companies are not stable. There is not a maturity or any other date that you know what the value will be of a stock of a dividend paying company.
He also discusses that many funds have different criteria for picking dividend-paying stocks. Examples of differences include: industries, length of time they have paid dividends, required growth in dividends.
An investor should know why they are interested in a particular fund. Then see the fund hold stocks that are consistent with what they are looking for. As important is how such funds fit into their existing funds. Some funds they own that do not have “dividend” in their names may own primarily dividend paying stocks. Many value funds and income funds hold such stocks.
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Investor’s due dillegence is more important than ever.

Joseph — Fri, 06 Apr 2012 17:13:40 +0000

In an effort to help entrepreneurs raise capital Congress passed the Jobs Act, (Jumpstart Our Business Startups) with bi-parisan support.. The law applies to businesses that have under $1 billion in revenue, that have been public for less than 5 years and have less than prescribed capitalization.
The law exempts these business from a variety of accounting and disclosure rules. Investors that are considering investing in such businesses may want to spend additional time looking into such businesses. For example, these businesses are not required to have their internal controls audited. An analysis performed for The Wall Street Journal suggests that since 2004 there have been “…104 companies that had issues with there anti-error, anti-fraud procedures… would have been exempt from auditors scrutiny of those procedures if the JOBS Act been in effect at the time.”
Anyone considering an investment in such a company should request information about their operations. If they do not have audited statements or an internal audit of their internal controls additional information should be requested. The business background of the operating personnel, professional advisors, bankers, etc should be undertaken.
There have been many lessons learned from the Bernie Madoff escapades. One is that you can not rely on how well known a person is or how likeable they are.
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Measuring our economy is not easy.

Joseph — Sat, 31 Mar 2012 00:53:59 +0000

Many different statistics are available to measure the health of our economy.
Stock indexes are often used to measure the health of the economy. How do you decide which index to watch? The Dow Jones Industrial index is frequently quoted in the media. Many of the indexes are based on the price of the underlining securities. Most of the indexes do not factor in dividends. The results would be different if the dividends were reinvested and included in the calculation for subsequent periods. The comparison to prior periods does not factor in inflation.

Since the introduction of the indexed mutual funds in 1976, the number of individuals investing in stocks has increased. Could that impact the ability to compare the value of indexes to periods prior to 1976?

Indexes factor in the value of each company. The weighting within the index varies among indexes. Most give more weight to the larger companies. Some indexes include an equal weighting of the underlying securities. Other indexes give different weight to other factors.

GDP (gross domestic product) is another factor that people look at to see how the economy is doing. GDP is the value of all the goods and services produced in the economy.

GDI (gross domestic income) is to total of all income received in the economy, Income includes: wages, interest, profits, etc.

Some of the other factors considered to measure the health of the economy included: employment, residential housing, gas prices, etc.

Adding to the confusion is how the statistics are determined and the time it takes to release them. Then there are also seasonal and other adjustments as more of the information becomes available.

The more reports one reads, the more apparent it is that the best and brightest looking at the economy do not agree on where it is and where it is going. Most investors should treat this information as static and not as information to react to. Investing is a long-term process.

Each investor must determine for themselves what they need to do to achieve their personal financial goals. They must identify when the funds are needed, how comfortable they are with fluctuation in values, if they can tolerate a loss of value, and many other factors. An approach should be developed that reflects the various factors. The monitoring and adjusting for changing goals, etc. should be performed consistently over the long-term.

Annuity Case Chills Insurance Agents

Joseph — Mon, 19 Mar 2012 15:21:22 +0000

The article in today’s The Wall Street Journal , “Annuity Case Chills Insurance Agents” raises many questions. My comments are based solely on the article. An insurance agent was convicted of a felony-conviction “for selling a complex annuity to an 83 year-old` woman who prosecutors alleged had shown signs of dementia.” The criminal case, brought under a state law specifically protecting elderly people.”
“The case underlines authorities continuing discomfort with ‘indexed annuities.”
“Indexed annuities are attractive to agents because of the high commissions they receive from insurers, which can be 12% or more.”
“In the mid-2000s, private plaintiffs and state attorneys general sued numerous insurers for alleged unsuitable sales of products to elderly people who lost money because of the withdrawal penalties. To resolve the suits, insurers agreed to better screen buyers for financial suitability, among other changes.”
Congress is currently is considering what standard should apply to individuals that provide financial saervices relating to to securities. Currently registered investment advisors are held to a fiduciary standard. That is, they must do what is best for their clients. Others, brokers, are held to a lower standard, suitability standard. There currently is disagreement whether indexed annuities are a security or an insurance product. If they are insurance products, the provider of the annuity will generally be held to the standard of the applicable state. For those who believe in regulations, why should there be more than one standard. If indexed annuities are an insurance product, they are subject to 50 different standards.  Other questions apply to people who move to other states, or who live in one state and purchase the indexed annuity in another state from an agent in yet another state. How will the consumer know what standard applies? If they are securities, who will the consumer know what standard applies?
If a separate standard applies to the elderly, how should “elderly” be defined? Are there others that should have a separate standard. There seems to be unanimous agreemnt that these products are complex. Should the level of education be a factor?
This is only a few of the questions that this case raises.   If you are considering an indexed annuity, be sure to prepare yourself to make the decision. A professional with the applicable experience, education and integrity is a good way to start.
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A “balanced” view of the economy.

Joseph — Fri, 16 Mar 2012 14:17:20 +0000

In my view, David Wessel’s column in the March 15th edition of the The Wall Street Journal provides a realistic and balanced view of the economy. The second paragraph starts: ”Watching incoming economic data these days is like flying an airplane with two airspeed indicators. One says you’re picking up speed : the other says you’re not.”
The last paragraph states: “The U.S. economy feels better than it did a few months ago. Signs of strength are proliferating. That’s undeniable, and encouraging. but there are too many warning lights blinking in the cockpit…”
Looking back to the fluctuation in the stock market in 2000 and 2007-2008, few “knowledgeable” people saw the drop coming.
Among the lesson learned is that an investment portfolio should consider you financial goals, the timing of the needs and many other factors unique to your situation. In addition to assessing the holdings in the portfolio you must assess the changes in the other factors. Portfolios should be constructed for the long term. Portfolios should be monitored and evaluated periodically. The make-up of the portfolio, allocation, should be based on the above factors. It should also recognize that know one knows the future. The allocation should not be kept the same. It needs to be adjusted to reflect the changes in all the factors that can be identified. This includes recognizing that you will never be able to identify every factor or every consequence of the factors you can identify.
For most people, the monitoring and changes should be reviewed annually. That is, in addition to life events and other significant and material changes.
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