Cedar Financial Advisors-News and Views

What does the term “get your ducks in a row” mean? According to the wiseGEEK, when a person is fully prepared for any eventuality and has every element in place, he or she can indeed be said to have his or her ducks in a row.  Jim Blankenship, CFP®, EA Getting Your Financial Ducks In A Row blog is a great resource, with a focus on retirement planning and tax planning.  Jim also offers up witty quotes and commentary on Twitter, where you can find him @BlankenshipFP. Jim’s most recent post, Pension Payout: Annuitize or Rollover (Cash)?, walks through some of the issues that you need to consider when faced with the option to cash out a traditional pension plan, with particular emphasis on the value of money in hand versus a lifetime income stream.  Important considerations to review when making one of these “once in a lifetime” choices.

When you have your ducks in a row, you have an investment plan, which includes an asset allocation that is aligned with your goals, time horizon, risk tolerance, and need to take risk.  Russ Thornton, an Atlanta-based wealth manager at Thornton Wealth Management, provides some timely advice  on When To Buy & When To Sell.  This post, inspired by a recent voicemail from a client, about how emotions creep into our financial decision making and can lead otherwise smart people to potentially make some dumb and costly mistakes.  That’s where an independent, objective advisor can add a lot of value – by providing a consistent voice of reason in the face of emotional influences.  You can also find Russ on Twitter @RussThornton

Another benefit of having your ducks in a row is peace of mind.  Roger Wohlner, is a Chicago-area Fee-Only Financial Advisor and Twitter devotee(addict?) @rwohlner. His recent post, Financial Conferences and Stock Market Drops, describes how most of his clients are reacting to the recent market volatility.  As luck would have it, he has been away from the office attending financial conferences twice now on days when the stock market experienced sizeable drops.  Rather than a lot of voice mails from frantic clients, he generally receives few if any calls on days like this.

By now you’re curious how to find a trusted advisor to help you get YOUR ducks in a row.  Nathan Gehring CFP®, who is based in Appleton WI, illustrates how by way of a medical analogy in his latest post And About That Free Financial Plan.  Would you select a doctor who was paid by a pharmaceutical company? Yet, this is what people do every day when selecting a financial professional. There is a better way.

A recent It’s Only Money column in the Oregonian describes how getting a tax refund is essentially giving an interest-free loan to the State or Federal Government. You can match your withholding to your tax liability by adjusting your allowances on form W-4.

When considering changing your tax withholding, it is important to separately consider your federal and state tax situation. For example, if you received a federal refund last year and owed Oregon tax, raising your allowances COULD mean that you would be subject to a Oregon underpayment penalty.

Good news – you can adjust your federal and state withholding allowances separately. The Oregon income tax withholding brochure from the Oregon Department of Revenue describes situations where your withholding may differ from your tax liability

• You are in a dual-earner household filing a joint return;
• You have more than one job;
• You have large amounts of nonwage income;
• You have large deductions;
• You claim federal credits that don’t apply to Oregon,
such as federal child tax credit; or
• You claim Oregon credits not accounted for on the
federal tax form, such as Oregon Working Family
Child Care Credit.

You can change your Oregon allowances by submitting a form W-4 and writing “for Oregon only” on the top of the form. The brochure includes Oregon adjustment guidelines, and a calculator for high-income earners.

The Cedar Mill Business Association (CMBA) recently completed the installation of flower baskets and banners on Cedar Mill’s “Main Street”, Cornell Road.  The baskets, banners, and a recent clean-up event were all staffed and funded by community volunteers and CMBA members.  Cedar Mill is in unincorporated Washington County, and the CMBA is stepping up to provide services that would normally be provided by a city in an effort to provide an identity for our downtown area and enhance the community.  You can read more about the Cedar Mill community enhancement projects in a recent Oregonian article.

Disclosure: I’m a member of the CMBA and currently serve on the Board of Directors as Treasurer

Tags: CMBA

Mark your calendars!  The “Your Money Bus Tour” is coming to Portland on June 18th and 19th.  Local certified financial advisors will be volunteering their time to sit down with residents and answer their financial questions, FREE of charge, with NO strings attached.  Bring your financial questions to Pioneer Courthouse Square between 11:00-6:00 on Friday, June 18th and 9:00-2:00 on Saturday, June 19th and have an opportunity to sit down, one-on-one with a financial advisor and get answers to your most pressing financial questions.  The tour is a consumer outreach initiative, to help residents learn about financial literacy, debt, and savings. for more information on the tour, or to schedule and appointment, go to http://www.yourmoneybus.com

What a difference a year makes…

The 2009 Callan Periodic Table of Investment Returns was recently published. A link to the Periodic Table is here. BlackRock also publishes a table, which I prefer because the table includes a Diversified Portfolio. A link to the BlackRock 2009 table is here.  You can also click on the thumbnail image below.

Some observations:

• Large Cap Core, AKA S&P 500 Index, swung from a -37% loss in 2008 to a 26.5% gain in 2009, while fixed income, AKA Aggregate Bond Index, provided a steady return of 5.2% in 2008 and 5.9% in 2009.
• The Diversified Portfolio is composed of 35% of the Barclays Capital US Aggregate Bond Index, 10% of the MSCI EAFE Index, 10% of the Russell 2000 Index, 22.5% of the Russell 1000 Growth Index and 22.5% of the Russell 1000 Value Index.
• It’s impossible to predict with any certainty which asset class will “win” in 2010.  Where are all the pundits who predicted a 26.5% return for the S&P 500 in 2009?
• The Diversified Portfolio returned 20.8% in 209, or 78.5% of the S&P 500 all equity asset class.

The table is a pictorial view of the benefit of a diversified portfolio, which consistently provides relative returns in the middle of the pack.  It’s important to own a mix of stocks, bonds, and cash, diversified across multiple asset classes to reduce the volatility of returns in a portfolio.  You can see this by comparing the Diversified Portfolio returns to those of any single asset class over the years.

Tags: Asset Classes

If you made charitable gifts or purchased tax-deductible memberships to any of Oregon’s arts, heritage and humanities based non-profits this year, There’s still time to receive a generous tax credit provided by the Oregon Cultural Trust.

The Oregon Cultural Trust is building a permanent endowment fund for culture, providing grant awards to cultural organizations throughout the state, and working to increase participation in cultural programming.  Since 2002, the Trust has raised $17million in contributions, including $3.37 million in fiscal 2008.

The Trust is funded by private contributions from individuals and corporations who:

1. donate to any number of non-profit cultural organization
2. make a matching gift to the Oregon Cultural Trust.

To take advantage of the Cultural Tax Credit for the 2009 tax year, a donor must follow these steps:

Step One: Contribute any amount to one or more of Oregon’s qualifying non-profit cultural organizations during 2009.  (A searchable list of 1200 qualifying organizations can be found at www.culturaltrust.org)

Step Two: Make a matching gift to the Oregon Cultural Trust before December 31^st, 2009. You can donate on-line at their secure website www.culturaltrust.org

Step Three: Take a 100%, dollar-for-dollar tax credit against your Oregon Income Tax equal to your gift to the Oregon Cultural Trust up to $500 for individuals, $1,000 for couples filing jointly or $2,500 for Oregon corporations.

To illustrate: A couple who makes a $1,000 contribution to Oregon Public Broadcasting and a $1,000 contribution to the Oregon Cultural Trust will receive a $1,000 tax credit on their Oregon Income Tax, a $1,000 deduction on their state income tax and may receive a $2,000 federal deduction. The tax benefits of charitable contributions depend on your personal tax situation. You should consult your personal tax adviser if you have any questions.  Further information about the Oregon Cultural Trust can be found at www.culturaltrust.org or by calling the Trust at 503-986-0088.

It’s that time of year, and it’s more important than ever to review your plan to ensure you are getting the best value and minimizing your total cost based on your specific health care services and prescription drugs used.

The Oregonian has a good Oregon Medicare overview and resource guide, courtesy  of Brent Hunsberger.  You can read the guide here.  The  Oregon Senior Health Insurance Benefits Assistance (SHIBA) has published a comprehensive Oregon Medicare guide which is available online here.

Prescription drug costs are typically a significant component of total Medicare costs, and the total annual cost for a given list of drugs varies significantly from plan to plan.  Many plans are raising rates, and increasing the cost of drugs in the plan.  If you have added or changed your prescription list this year, it is imperative that you review your drug plan.  Kiplinger has published a handy guide to using the Medicare prescription drug plan finder here.

Tags: Medicare

Risk management is a integral part of  a comprehensive financial plan.  Your health, family, and home are important and need to be kept safe. Join NAPFA-Registered Financial Advisor Roseann Bove, CFP, CLU in a NAPFA consumer education webinar on November 6th, 2009 at 11am pacific.  Roseann will provide information on how you can protect the things you have through life, health and medical insurance.  Click here to RSVP for the webinar.

You can learn more about this and other upcoming NAPFA consumer education webinars here.

Tags: NAPFA

If you are an Intel employee, you should find this post informative.

Earlier this year Intel shareholders approved a Company proposal to exchange underwater employee options for new options at a lower strike price. Unlike Google, who granted their employees a 1 to 1 exchange with perfect timing, the Intel options exchange is designed to be a “value for value” exchange. Intel updated the Tender Offer documents today to include the preliminary exchange ratios, which are shown below.

Intel has provided an online tool (My Option Exchange) to model different scenarios and decide, on per-grant basis, to accept or reject the Exchange. The tool has a modeling feature that allows you to use different assumptions about Intel’s stock price growth. The tool will show the “cross-over point.” It’s the point at which your current options would be worth more than the new options.

Source: sec.gov

Decision Factors

The employee presentation states that the decision factors include:

1. Current Grants – Understand the details of your current grants (# of options, grant price, expiration date)
2. New Grant – Terms of new grant (4 year vesting, expire 7 years from grant date, exchange ratio)
3. Stock Price Growth – expectations for the future value stock price
4. Value – potential option future value

Let’s include several more decision factors:

1. Tenure – how long do you expect to remain employed at Intel?  What is your view of your job and organization future prospects?
2. Retirement – do you plan to retire within the next 2 to 7 years?  Are you eligible for Rule of 75?  If so, special considerations apply.
3. Risk tolerance – what is your appetite for risk?  Would you rather have an increased likelihood of a moderate gain or the current likelihood of a larger gain? How would you feel if your current option(s) expired worthless when the new option would have provided a gain?
4. Cash flow – do you have a high priority need for extra taxable income or can you afford to treat the options as variable income?

The Bottom Line

The key variables in the analysis are your forecast of the annual stock price growth rate and your risk tolerance.  History is not a useful guide since the 10 year historical stock price trend is declining.  A reasonable assumption is that Intel future stock growth will be in line with other domestic large cap growth companies.  Semiconductor companies have historically had cyclical growth, with stock price swings larger than the broad market.  Beta, a measure of volatility of a stock relative to the broad stock market, is currently 1.2 for Intel.  For example, if your large cap growth asset class forecast is 9%, then the Intel forecast is 9% * 1.2 = 10.8%.  You will get significantly different projections based on changes on the assumed growth rate, and the sensitivity of the crossover point to changes in the growth rate will vary by stock grant.

The decreased time value of older grants that are closer to expiration is reflected in the higher exchange ratio than for new grants at a similar exercise price.  Since you can exchange on a per-grant basis, you can keep some of the existing grants to capture a portion of the upside potential if you are a “true believer” in significant expected future growth.

One more thing – the exchange ratios are preliminary and could change if there is a significant change in Intel stock price during the offer period.  Earnings are announced on October 13, during the offer period.  Be sure to re-visit your decision after the final exchange ratios are announced about 10 days before the exchange window closes.

Standard & Poors recently released the Midyear 2009 results for the Standard & Poor’s Indices Versus Active Funds Scorecard (SPVIA).   The report is now published semi-annually, and the key findings are summarized below.  The prior report was published for year end 2008 data, and reviewed on this blog post.  You can read the full report here.

• As a result of the market volatility over the past year, domestic and international equity funds have performed in line or marginally ahead of
  benchmarks. However, both taxable and tax exempt fixed income funds’ asset weighted returns trail benchmarks by large margins.
• for the past five years through June 30, the S&P 500 beat 63% of actively managed large-cap funds, compared to 71.9% in the prior report
• The S&P MidCap 400 outperformed 73% of mid-cap funds, compared to 79.1% in the prior report
• S&P SmallCap 600 outperformed 57% of small-cap funds, compared to 85.5% in the prior report
• The five-year data is unequivocal for fixed income funds. Across all categories except emerging market debt, more than three-fourths of active managers have failed to beat fixed income benchmarks. Similarly, five-year asset-weighted average returns are lower for active funds in all but two categories
• Active management advocates will take some comfort in the latest data, which shows a active managers ahead in some categories on an asset-weighted basis, and an improvement in the fund-weighted data compared to the last report.

We often hear of the benefits of active management in times of market stress and volatility.  One common assertion is that an active manager can alter a portfolio’s makeup to invest in defensive stocks or in cash to in anticipation or during a bear market. However, a recent Vanguard research paper determined that active managers “have not consistently delivered superior performance relative to a benchmark during such periods.”  Higher costs, stock picking, and market timing again proves to be a difficult hurdle to overcome, in any market environment.