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Strategies
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Tiger 21 Experts Give Insight Into Current Investment Environment |
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Tuesday, February 19, 2013 13:24
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Tags: growth investing | investment management | investment strategies
At the recent Tiger 21 meeting, bears still outnumbered the bulls. If you’re a contrarian, that’s a good thing. Tiger 21 is a peer group of wealthy investors that manages approximately $18 billion in assets.
Experts presenting at the meeting noted some valid concerns: artificially low interest rates, potentially disruptive global financial situations, and continuing concerns about government debt. This Website Is For Financial Professionals Only
The emphasis was on being prepared. Even as equity prices are climbing, investors should not lose sight of how quickly real returns can turn negative when the inflation monster hits.
Thinking about the global macro-economic picture when making investment decisions is also key. You can make the best decisions but if the macro picture doesn’t support it, you can make significant investment mistakes.
There were other innovative ideas at the meeting, like the premise that investing in northern European countries offers exposure to emerging markets.
This is because European countries don’t have enough domestic demand. They have to go out of their way to find returns.
Distressed investing is one way to take advantage of the recessionary environment in Europe.
Legal structures in northern European countries provide various safeguards because the rule of law dominates.
But make no mistake, the US economy is still dominant. The saying so goes the US goes the world is still valid.
That means the US deficit and inflationary pressures are still major concerns. That leads some experts to be fearful of the complacency exhibited by Congress about addressing the deficit.
Finally, experts say it’s a prime time to invest in real estate. Yields on property are greater than the debt components, creating a positive leverage situation.
Buying below replacement costs protect against inflation. The key for any investment, say these experts, is to measure risk versus reward. |
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Simpson And Bowles Renew Effort To Reach Bipartisan Compromise On Deficit Reduction; It's The Fourth Try In Three Years |
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Tuesday, February 19, 2013 13:22
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Tags: Congress | deficit | Economic Outlook
Alan Simpson and Erskine Bowles are at it again. On Tuesday, February 26, they will offer yet another fix for the tax code and the US deficit.
The effort is to carve a path toward bipartisan compromise, a feat that continues to elude lawmakers. This Website Is For Financial Professionals Only
The two let the deficit-reduction panel in 2010 in putting together a bipartisan package that fell flat right out of the gate.
Many lawmakers left for recess this week after making little progress to avert the cuts scheduled to be enacted on March 1.
The cuts will be in force through September unless Congress intervenes. Some say intervention becomes more likely by the day.
Simpson is a Republican and Bowles a Democrat. The two say their new plan would reduce the deficit by $2.4 trillion over the next decade, which is more than the $1.5 trillion goal set by the White House.
The new Simpson-Bowles proposal would reduce spending by $600 billion in the form of cuts to health-care programs like Medicare and Medicaid.
Another $600 billion would come from either curbing or eliminating a number of tax breaks.
The final $1.2 trillion would come from capping discretionary spending, changing the cost-of-living calculation for Social Security beneficiaries, changes in farm subsidies, and changes to military and civilian retirement programs.
The new proposal will be the fourth attempt by the pair in the past three years to galvanize a deficit-reduction deal between the two parties. |
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Labor Supply Expected To Increase 1.2% As Those Who Gave Up On Finding A Job Re-Enter The Search |
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Tuesday, February 19, 2013 13:06
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Tags: Economic Outlook | economy | Federal Reserve
The labor supply will expand approximately 1.2% this year. Philadelphia Works, Inc. connects employers to prospective employees and the non-profit is seeing a pickup in the number of Americans seeking employment.
It says that many people who gave up on finding a job are now searching again. A fourth quarter to fourth quarter comparison shows the labor supply expanded .8% in 2012. This Website Is For Financial Professionals Only
The expansion in the labor force will also slow down the drop in the unemployment rate. This is because there will be more job seekers in the calculation and the number of jobs available will have to catch up.
Analysts see the unemployment rate dropping to 7.5% by year-end from the current 7.9% level. Overall, a larger pool of job seekers is good because it increases the economy’s ability to grow. More jobs, more disposable income, more consumer spending.
The gradual fall in the unemployment rate will also continue to give the Fed room to keep monetary policy easy for a longer period of time without inflation worries.
This causes some analysts to think the Fed will continue its bond-buying programs even into next year, although perhaps at a reduced pace.
One of the biggest issues with the economy has been the fact that many job seekers have fallen out of the search, making it more difficult for growth in the economy to take hold.
There is some worry that those who have been out of the market for extended periods will have difficulty landing a job because their skills have not kept up.
About 1.8 million of these could re-enter the job market as more jobs open up as the economy gets stronger. |
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Changes In Asset Allocation In Coming Years Will Determine Asset Manager And Independent RIA Success |
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Tuesday, February 19, 2013 12:57
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Tags: Advisor businesses | advisor industry people | asset allocation It is predicted that investment managers will grow their assets by less than 1% over the next four years, based on a trend that began in 2008.
It’s a trend that also applies to independent RIAs and financial planners. This Website Is For Financial Professionals Only
Before 2008, asset growth of 6% to 7% was commonplace. Now, asset managers are struggling with declining revenues from the slowdown in asset flows.
A management consultant to the asset management industry, Casey Quirk, said in a recent white paper that competition will become more fierce but that firms that know how to innovate will experience success.
The consultantancy says that there are four areas where successful firms will outshine their competitors.
One is by offering uncorrelated and superior returns on equity, fixed income, and/or alternatives.
Two is through cost-effective indexing and exchange-traded funds (ETFs).
Three is through asset allocation expertise—it’s the most open playing field and the most in demand by clients. Four is by selling open-architecture, best-in-class solutions.
The consultancy says the firms who excel in these areas will win 90% of the new assets available over the next five years.
Asset allocation will take a variety of forms. Some will be developed in-house by advisors while other advisors will choose to outsource it.
The outsourcing crowd will need to develop the best selection models possible and apply them to specific clients.
Long-term accumulation planning is becoming the foundation for generating income streams from portfolios.
Allocations are also including distribution planning, a component Casey Quirk says will distinguish successful revenue growers.
Of course, there are other factors in asset allocation that will do as much or more to distinguish advisors. Shifting to goals-based allocation more directly aligns your work with your clients' goals.
Understanding the influence of the dynamics in the family on decisions made about the family wealth also can affect asset allocation as well as asset location.
These latter factors remain under the radar and are rarely discussed in combination with the other factors highlighted here. They have a yet-to-be unleashed power to catapult advisor businesses beyond the competition.
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2013 May Be The Perfect Year To Convert To A Roth; It's A Good Conversation For Setting Up A Client Review To Plan For The Year |
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Tuesday, February 19, 2013 12:54
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Tags: Congress | roth ira conversion | Taxes
If your clients have been wondering whether it makes sense to convert to a Roth IRA, this might be the year to say yes.
The new tax year delivered a threshold of $400,000 individually and $450,000 for married couples as the threshold for the higher income tax bracket.
It also means they can convert up to $200,000 more into a Roth without crossing the higher-tax-bracket line. This Website Is For Financial Professionals Only
Because the Bush era tax cuts were made permanent for those under the threshold, it’s no longer necessary to convert as much as possible in one year to lock in a favorable tax rate.
Investors can instead spread their conversion amounts over a period of years. They can even decide to re-characterize their 2012 conversions made in anticipation of higher tax rates as the 2013 dawned.
Re-characterizing basically means undoing a conversion. So if you had $500,000 in your IRA last year and you decided to convert it to a Roth in anticipation of higher tax rates, you could re-charaterize $400,000 of the Roth and put it back into the traditional IRA.
Then you could spread the other $100,000 over the next four years and still not be pushed into the new 39.6% tax rate.
The only caveat is that you have to wait at least 30 days after your conversion to do the re-characterization.
There are other options available now, too, such as spreading the tax liability of a large converted amount over a period of years, making it easier to stomach than having to pay the liability all at once.
Of course, the 3.8% Medicare surtax might come into play, making the original idea of converting still the best option.
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