From time to time, about every 2 weeks, I'll post a new
"musing" to this page of the website. I'll write 250 words
or so about personal finance topics that I believe will
be helpful (if not humorous). Enjoy!
July 23, 2010 | George Steinbrenner--Still Winning.
During Steinbrenner’s tenure as owner, the Yankees won something like 7 World Series titles and 11 pennants. No matter whether you like/dislike the Yankee’s, you have to admit that’s a lot of winning. And by dying in 2010, “The Boss” wins again.
Here’s a little quiz for you… if I showed you the following numbers and asked you to guess what’s next in the pattern, what would you say?
Year - Exclusion - Max. Tax
2001 - $675,000 - 55%
2002 - $1,000,000 - 50%
2003 - $1,000,000 - 49%
2004 - $1,500,000 - 48%
2005 - $1,500,000 - 47%
2006 - $2,000,000 - 46%
2007 - $2,000,000 - 45%
2008 - $2,000,000 - 45%
2009 - $3,500,000 - 45%
2010 - ??????????????
I admit it’s not a perfectly smooth change from year to year, but I bet you wouldn’t guess that it looks like this:
2010 - Estate Tax Repealed - 0%
That’s correct. Zip. Zilch. Zero. Not-a-dang-thing. You pay nothing in federal estate taxes if you die this year. If you died last year and had an estate worth more than $3,500,000, you would have paid a maximum estate tax rate of 45%. And if Washington doesn’t do anything this year to change it, next year if you have an estate worth more than just $1,000,000, you will pay a maximum estate tax rate of 55%. The heck?
So just because Steinbrenner happened to die in 2010, his bazillion dollar estate will not be subject to federal estate tax. Granted, he (like other very wealthy people) likely had some very sophisticated estate planning work done by a number of estate planning attorneys that would have provided him a great deal of flexibility in regards to (not paying as much) federal estate tax, no matter what year he died. But, his estimated net worth was something like $1,150,000,000 (<--that’s $1.15 billion, with a “b”), so the timing of his death could save his heirs up to $500,000,000 in federal estate taxes. That’s a whole lot of Derek Jeters!
The point is that this whole scenario is just silly. You die in 2009, you pay a lot. You die in 2011, you pay even more. But, you die in 2010, ding-ding-ding… it’s like you (your heirs, really) just landed on Free Parking in Monopoly. Wahoo!
Next musing I’ll talk about how/why this 2010 estate tax craziness happened.
+ Click here to view past musings.
July 9, 2010 | More Fun Gold Facts.
Gold is simply a store of value. It doesn’t have underlying fundamentals (that can be researched and that a subsequent investment can be based on) like the stocks and bonds of companies that trade on the stock market. And it doesn’t pay dividends or interest like stocks and bonds do. It really comes down to speculating on higher prices.
In addition, gold is expensive to invest in (and I’m not talking about its $1200/ounce price). If a guy wants to purchase actual gold (bars or coins), he’ll also incur:
--About an 8% markup over the current spot price of gold just to buy a gold coin (American Gold Eagle, for example)
--Shipping/transportation costs to obtain the gold
--Storage costs (unless he has a very big gun or a really mean dog it’s probably not smart for him to actually keep the gold in his hall closet)
--If he actually does take possession he may even have to pay to reauthenticate the gold in order to sell it later
--Insurance costs (no matter where it’s stored)
It gets worse. Gold is taxed as a collectible. No matter what form he owns it in (coins, bars, Exchange Traded Fund (ETF) shares) the long-term capital gains tax rate is 28% on gold, compared with 15% currently on other long-term assets. Taking into account all these potential costs and the big tax bite, it’s easy to see that he needs some large-size returns on his gold investment to make it pay off.
Again, I’m not saying you can’t make money investing speculating in gold, I’m just saying it’s a very volatile, very risky investment and you should know what you’re getting into. As long as you know exactly when to get in and when to get out of the gold market you can make a ton of money (heh, heh)!
And I know last time I mentioned I’d share some TIPS (hint) about a better way to hedge against inflation... I promise I’ll cover that in a future musing.
June 25, 2010 | Maybe Dan Seals is right. Everything that glitters is not gold.
Since gold has been on a fairly steady march upward recently I thought we’d talk a little about that today. Here are a couple popular reasons people buy gold:
#1 Gold is used as a hedge against inflation
#2 Gold is seen as a solid store of value in the event of economic collapse
Let’s start with #1 above. It’s debatable as to whether or not gold is a decent hedge against inflation. Let’s go back about 30 years to 1980 (a good time period for comparison, as there was a pretty good gold rally going on right about then and it’s been on a little run as of late). In 1980 we were in the Second Cold War and inflation and oil prices were sky high. Gold hit a record high of $850/ounce in 1980. An investment made during that gold rally would still be losing to inflation. In fact, gold would need to close north of $2000/ounce to beat inflation on that 1980 investment. Even given its current rally, it’s at about $1240/ounce today. To be fair, gold does have a slightly positive real return if you go back about 75 years or so, but is your investment time horizon that long? Maybe not.
Now on to #2. I’m not sure I’d trust gold to insure against economic collapse. Let’s assume the value of the dollar evaporates. Assume inflation runs out of control. Assume there are riots in the streets. Assume a guy owns some fancy gold bars and a bunch of gold coins. What the heck is he going to do with those things? Run down to Dillons to restock his supply of canned goods by paying with a Krugerrand?
Bottom line: #1 I think there’s a better way to hedge against inflation (more on that in my next musing) and #2 if we really do experience financial Armageddon, I don’t think a stockpile of gold will save the farm.
I’m not saying you should never ever invest in gold, I’m just saying it’s a very volatile, very risky investment and you should know what you’re getting into. More fun gold facts for you coming up in my next musing.
And if you really want to hear Dan Seals, here's a little bonus for you: Dan Seals | Everything that Glitters (is not Gold) June 11, 2010 | Market Volatility.
That’s an understatement, huh? The market volatility of late has been amazing. The Chicago Board Options Exchange Volatility Index (VIX) tries to measure what near-term market volatility will look like. It attempts to do this based on S&P 500 stock index option prices. Basically, the greater the perceived risk of owning stocks, the higher the volatility, the higher the VIX. You can see from the chart below that it was quite high in May 2010.
So what does this mean for you and me?
Here’s the bottom line: we can’t control the market or the market’s volatility. So we have to focus on the things we can control, namely our behavior in regards to this market craziness. Here’s what I’m doing in response, please join me and try to:
Continue to spend wisely. Keep saving and investing regularly. And focus on the long-term. May 28, 2010 | Fiduciary Visual Aid.
May 14, 2010 | F-i-d-u-c-i-a-r-y. A Very Important “F” Word.
This is my first musing and something I’ve been meaning to write about for a long time. The word fiduciary. It’s a big part of my company’s mission statement that appears on the home page of my website, it’s on my business cards and it’s on my fancy purple and white (hat tip to K-State) old-school Bic Clic pens. The bottom line is fiduciary is a huge part of what makes me different, as an hourly, fee-only financial planner. So here’s what it means and why you should care.
While investment advisers (like Nichols Financial Advice, LLC) are required to put their clients’ interest first, brokers are able to make recommendations that, while “suitable” for their clients, are not necessarily in their clients’ best interest. You read that correctly. Brokers (most often commissioned salespeople) are not required to put your best interest ahead of their own. Crazy, huh?
This is very confusing and harmful to investors like you, who simply expect that any financial planner is going to provide advice that is in your best interest. Period. It’s what you expect and it’s what you should get.
Here’s the bottom line… Be wary of any financial planner who gives you financial advice and also sells you the products he/she is recommending. And just ask your financial planner if they are a fiduciary. If they give you any answer other than an emphatic, “Yes”, here’s another “F” word to share with them: “Farewell!”
Gold is simply a store of value. It doesn’t have underlying fundamentals (that can be researched and that a subsequent investment can be based on) like the stocks and bonds of companies that trade on the stock market. And it doesn’t pay dividends or interest like stocks and bonds do. It really comes down to speculating on higher prices.
In addition, gold is expensive to invest in (and I’m not talking about its $1200/ounce price). If a guy wants to purchase actual gold (bars or coins), he’ll also incur:
--About an 8% markup over the current spot price of gold just to buy a gold coin (American Gold Eagle, for example)
--Shipping/transportation costs to obtain the gold
--Storage costs (unless he has a very big gun or a really mean dog it’s probably not smart for him to actually keep the gold in his hall closet)
--If he actually does take possession he may even have to pay to reauthenticate the gold in order to sell it later
--Insurance costs (no matter where it’s stored)
It gets worse. Gold is taxed as a collectible. No matter what form he owns it in (coins, bars, Exchange Traded Fund (ETF) shares) the long-term capital gains tax rate is 28% on gold, compared with 15% currently on other long-term assets. Taking into account all these potential costs and the big tax bite, it’s easy to see that he needs some large-size returns on his gold investment to make it pay off.
Again, I’m not saying you can’t make money investing speculating in gold, I’m just saying it’s a very volatile, very risky investment and you should know what you’re getting into. As long as you know exactly when to get in and when to get out of the gold market you can make a ton of money (heh, heh)!
And I know last time I mentioned I’d share some TIPS (hint) about a better way to hedge against inflation... I promise I’ll cover that in a future musing.
June 25, 2010 | Maybe Dan Seals is right. Everything that glitters is not gold.
Since gold has been on a fairly steady march upward recently I thought we’d talk a little about that today. Here are a couple popular reasons people buy gold:
#1 Gold is used as a hedge against inflation
#2 Gold is seen as a solid store of value in the event of economic collapse
Let’s start with #1 above. It’s debatable as to whether or not gold is a decent hedge against inflation. Let’s go back about 30 years to 1980 (a good time period for comparison, as there was a pretty good gold rally going on right about then and it’s been on a little run as of late). In 1980 we were in the Second Cold War and inflation and oil prices were sky high. Gold hit a record high of $850/ounce in 1980. An investment made during that gold rally would still be losing to inflation. In fact, gold would need to close north of $2000/ounce to beat inflation on that 1980 investment. Even given its current rally, it’s at about $1240/ounce today. To be fair, gold does have a slightly positive real return if you go back about 75 years or so, but is your investment time horizon that long? Maybe not.
Now on to #2. I’m not sure I’d trust gold to insure against economic collapse. Let’s assume the value of the dollar evaporates. Assume inflation runs out of control. Assume there are riots in the streets. Assume a guy owns some fancy gold bars and a bunch of gold coins. What the heck is he going to do with those things? Run down to Dillons to restock his supply of canned goods by paying with a Krugerrand?
Bottom line: #1 I think there’s a better way to hedge against inflation (more on that in my next musing) and #2 if we really do experience financial Armageddon, I don’t think a stockpile of gold will save the farm.
I’m not saying you should never ever invest in gold, I’m just saying it’s a very volatile, very risky investment and you should know what you’re getting into. More fun gold facts for you coming up in my next musing.
And if you really want to hear Dan Seals, here's a little bonus for you: Dan Seals | Everything that Glitters (is not Gold) June 11, 2010 | Market Volatility.
That’s an understatement, huh? The market volatility of late has been amazing. The Chicago Board Options Exchange Volatility Index (VIX) tries to measure what near-term market volatility will look like. It attempts to do this based on S&P 500 stock index option prices. Basically, the greater the perceived risk of owning stocks, the higher the volatility, the higher the VIX. You can see from the chart below that it was quite high in May 2010.
So what does this mean for you and me?
Here’s the bottom line: we can’t control the market or the market’s volatility. So we have to focus on the things we can control, namely our behavior in regards to this market craziness. Here’s what I’m doing in response, please join me and try to:
Continue to spend wisely. Keep saving and investing regularly. And focus on the long-term. May 28, 2010 | Fiduciary Visual Aid.
May 14, 2010 | F-i-d-u-c-i-a-r-y. A Very Important “F” Word.
This is my first musing and something I’ve been meaning to write about for a long time. The word fiduciary. It’s a big part of my company’s mission statement that appears on the home page of my website, it’s on my business cards and it’s on my fancy purple and white (hat tip to K-State) old-school Bic Clic pens. The bottom line is fiduciary is a huge part of what makes me different, as an hourly, fee-only financial planner. So here’s what it means and why you should care.
While investment advisers (like Nichols Financial Advice, LLC) are required to put their clients’ interest first, brokers are able to make recommendations that, while “suitable” for their clients, are not necessarily in their clients’ best interest. You read that correctly. Brokers (most often commissioned salespeople) are not required to put your best interest ahead of their own. Crazy, huh?
This is very confusing and harmful to investors like you, who simply expect that any financial planner is going to provide advice that is in your best interest. Period. It’s what you expect and it’s what you should get.
Here’s the bottom line… Be wary of any financial planner who gives you financial advice and also sells you the products he/she is recommending. And just ask your financial planner if they are a fiduciary. If they give you any answer other than an emphatic, “Yes”, here’s another “F” word to share with them: “Farewell!”