NavStar Currents

Everybody "knows" that folks in high tax brackets should hold municipal bonds in ther portfolio. Right?

I've seldom met a holder of municipal bonds who weren't extremely proud of their accomplishment. After all, they're getting growth at the expense of Uncle Sam. That just has to be good.

But the truth is that muni's may actually create more tax problems than they solve. Other tax strategies might work better.

Your Life, Your Death, and Your Legacy

If I were to ask you the name of your great great grandfather could you tell me? Not many folks can. But if your great great grandfather had set up a trust that was today paying you $50,000 a year tax-free I'll bet you could.

Death isn't something we like to think about, and I guess that's a good thing. After all, I believe that most people are optimistic by nature, and the subject of death isn't high on the optimist's list!

Yet, we cannot deny that this life will one day come to an end for us. We will then leave someone behind to pick up the pieces and carry on. Leaving a positive legacy is all about easing the strain on those who will have to do that. 

Have you given any thought to those who will be following in your footsteps?

We may be the most stressed out generation in history!

The statement above may be a little over the top. After all, probably nobody reading this has ever been kidnapped and sold into slavery, or watched half of the population of his city die of the plague.

But having said that, we are a generation on information steroids. Our grandparents embraced new "time-saving" appliances, such as washing machines and toasters, microwave ovens, etc. With all of the things we have to help us in our work we should be awash in leisure time. But is that the case with you? Certainly not with me.

Today, I'm not so sure we're not a slave to our devices. E-mails, tweets, and text-messages scream for our immediate attention. Our social life consists of wierd virtual friends whom we'll never meet in person, and really know nothing about. Responsibilities are endless, and especially if you're a working professional, the hours in the day don't seem to be enough.

Trying to keep all these ducks in a row can be too much. Many times the management of your finances is a chore that is always pushed out to the future.

The Hare vs. the Tortoise

Let's face it, Wall Street is sexy. Where else can the lure of 150% returns and the calculation of standard deviation, variance, and geometrically weighted returns create such excitement? Wall Street is the red Ferrari, the F-16 fighter, the Rocky Balboa of earning money. Just remember that Rocky took some hard knocks along the way!

But what about "good old, boring life insurance?" Can it be a good investment?

Many advisors today would tell you that the answer to that question is no. Certainly those advisors who also happen to be stockbrokers would say that. But our parents would have had a different idea. To the “greatest generation” the idea of risking money in the market brought back unpleasant memories of losing everything in the great depression.

But it's just not sexy, insurance. Ugh! Why would anyone want the tortoise when they can have the rabbit?

Did you know...

that before 1980 less than 5% of Americans were invested in the stock market? That's kind of hard to believe when you've just seen the latest report on the Dow in the evening news, followed by several commercials from investment firms, and even a cable channel devoted to Wall Street!

But our parents were probably not part of all this. They accumulated wealth in more traditional ways, and took much less risk. Why do we take such risk with our money today? Because we have been educated by the Wall Street machine to believe that we have to.

As an investment advisor, and a financial planner, I would agree that over the long-term there isn't a better way to grow assets than in the market, which has traditionally returned north of 7% year after year OVER THE LONG HAUL. But what if you are a retiree, or getting close to retirement? Can you really be happy about losing half of your portfolio in a few months, and then waiting six years for it to come back? That's what happened in 2008-09. What if you suddenly had to pay for long-term care just as your portfolio hit bottom? Would you still be excited about Wall Street? By the way, in the 30's, after the stock market crash, an entire generation never trusted Wall Street again, or banks!

Are your life insurance benefits important to you?

Are you one of those people who has paid into a cash-value life insurance policy for many years? Do you remember why you originally bought the policy? Does that reason still exist?

Ann is a widow whose husband John just passed away. They had no children. Thirty years ago Ann purchased a whole life policy on herself, making John the beneficiary. The payments on the policy are still continuing, and run over $100 a month. Now that John is gone, with nobody to leave the money to, she's considering cancelling the policy. What should Ann do?

There are a number of alternatives available to Ann. She could take tax-free loans against the cash-value in the policy. She could stop making premium payments and accept some sort of reduced payment of the death benefit. She may even be able to use the cash-value as collateral for a bank loan. I'd like to discuss a couple of lesser-known settlement options of a life insurance policy: viatical agreements and life settlements.

Did you see the 1980 film "Used Cars?"

The film starred Kurt Russell as a sleazy used-car salesman. The film drew laughs because it so fit the sterotype that American's have regarding the person who may have sold them their last car.

It just so happens that on the "trustability" scale, car salesman don't seem to rank very high. I'm beginning to wonder if we're not being too hard on them.

The recent TV series about Bernie Madoff detailed how one of the greatest financial criminals in U.S. history systematically stole somewhere between $20-50 BILLION from investors through an elaborate Ponzi scheme, which went undetected by the SEC for decades. Let's see the car salesman top that! ( I won't even go into how a politician can be nearly broke when they enter politics, and be worth hundreds of millions years later, while earning nothing more than a public servant's salary...)

Most people have a very happy relationship with their stockbroker. Many times I have asked folks, "how's your portfolio doing?" only to have them tell me something like, "it's been doing good lately." When I ask them for specifics, many times they can't tell me what "good" actually means. Often, when I analyze their holdings they have in fact been doing good, for the last year or two, but they are very surprised to discover that they are no better off than they were ten years ago! Why did they stay in the holdings they were in? They trusted their stockbroker.

Does it make a difference how your business is organized?

It might make a great deal of difference. For some folks being a Sole Proprietor will work just fine, while for others it could lead to financial disaster. How does one decide? First of all you need to know the answer to some basic questions. Here we go:

• How much do you personally want to be responsible for business debts and liabilities?
• Which form of ownership will minimize the tax bill?
• What form will best help me achieve my short and long term goals?
• How much money have you borrowed on your business and where did it come from?
• What skills will the business need that you cannot provide?
• How much personal control do you want over day-to-day decisions?
• What will happen to the business if you are unable to manage it?

How you choose to answer these questions is the basis for deciding how to organize your firm.

Those evil annuities!

If you have spent any amount of time in internet-ville you've probably seen those "free reports" describing the pitfalls of using annuities to grow your nest-egg. The implication is that shady insurance agents are out there pushing these highly questionable financial vehicles, without telling clients the whole truth about them.

Well, as a fiduciary, how would I rate these things? Would I recommend an annuity for one of my clients? For myself? My Mom?

I'd like to take a few minutes to discuss some of the chief objections to annuities, and then my thoughts on those objections, followed by a summary. So here goes...

Have you recently changed jobs?

If so, you may be wondering what you should do with your old retirement plan. Over the years you have accumulated quite a sum of money and now you are no longer with the company. Or you may still be there, but are just unhappy with the investment results that you're getting. Can you move that money somewhere else? Should you?

 The answer is: it depends.

It's possible that you're being approached by financial professionals who are happy to tell you what to do with that money. Here are some things that you need to know before making a decision on your 401-k rollover.