As I write, CNBC is streaming this news note: “Amazon on pace for worst quarter since 2008.” That’s not Al’s Sporting Goods CNBC is talking about. No, no they highlighted a company that’s the very heart and soul of our retail economy.
It’s not just Amazon either. December’s S&P Index is on pace to have as historically poor a performance as any seen over the last eighty years, save of those in the Depression-30’s, or the two most recent crises involving the tech meltdown and financial-housing market bubble bursts. 2018 will come in with the worst equity performance since 2008 and it will almost certainly be negative. Can’t be rainbows and unicorns forever.
Our job is to preserve capital in down markets and help our clients enjoy the fruits of appreciation in up markets. Next year, we see more clouds than sun on the horizon.
That said, the economy is purring. GDP will grow at 3.25% for 2018, a full fifty percent higher than its growth average for the eight years following the 2008 recession. Unemployment is at record lows. Our job market today has been called the “best job market in a generation” by recruiting site, Glassdoor. The Index of Leading Economic Indicators has more green than red lights.
So what’s an investor to do? Which door should we choose? Our job is to preserve capital in down markets and help our clients enjoy the fruits of appreciation in up markets. Next year, we see more clouds than sun on the horizon. With apologies to Billy Joel, we believe “There’s a storm front coming. White water running and the pressure is low.”
We do not think this is a good time to be buyers, contrary to our usual counterintuitive investment approach. Why? Because the market is acting out, not following its traditional norms. The yield curve is not clearly inverted and the economy is certainly not sending recessionary signals, still the market has been falling, and for most of the S&P 500 companies into correction territory (negative 10%+) or worse. We don’t think this is the bottom either.
What’s happening is kind of like this: You’re walking in the California sunshine of Santa Monica Boulevard on your way Urth Caffe, the place Randy and I think is the best coffee shop in the world when you’re hit by an unexpected squall. We don’t know how long it will last, but we’re providing an umbrella for the journey until you can plop down in your chair and enjoy that Spanish latte.
“Wealth is the ability to fully experience life.”
Henry David Thoreau
It’s no secret that “family” is a big part of the Westover experience. It’s not only that Chip is literally family and Matt nearly so, but that we see our clients as extensions of the word. To that end I wanted to apprise you of our Westover Family Office. It’s alive and well, up and running as we speak. So what, exactly, you ask is a Family Office?
John D. Rockefeller, 1911
Pioneered by the Rockefeller family in the 19th century, the traditional family office was created to manage and preserve generational wealth. This included handling everything from investment management and accounting services to booking travel and hiring staff. Once thought to be the limited domain of the ultra-wealthy, the family office has evolved and now is more than a little commonplace to high net worth families not named Rockefeller, as the needs of modern families have become more complex.
In 2014, New York Times “Wealth Matters” columnist, Paul Sullivan, wrote that the average asset value needed to justify the services of a family office was between $100 million and $1 billion. Today, with the advances in technology and the efficiencies they created, these services are attainable for a wider, yet still exclusive, market. You no longer need to own a private jet to enjoy the benefits of a family office.
Family offices are as unique as the people they represent, and no two are exactly alike. Here we believe that family office solutions should fit your needs instead of trying to fit your needs into pre-packaged bank-like family office “solutions”.
It’s no secret that “family” is a big part of the Westover experience. It’s not only that Chip is literally family and Matt nearly so, but that we see our clients as extensions of the word.
Just in case you didn’t know, Westover makes available a comprehensive set of family office services designed to give our clients the peace of mind they need to pursue their passions, support philanthropic causes, and protect their legacy through the responsible stewardship and the generational transfer of wealth.
Investment Strategy and Implementation
This service includes investment policy and asset allocation plan development, investment manager advice and in-house portfolio management. We also provide custodial, core asset class, and alternative asset class oversight so you can rest assured that your assets are working together for your benefit, regardless of whether Westover is actively managing them or simply advising on them. We offer single, consolidated statements and balance sheet review for assets wherever custodied and managed.
No one wants to put years of hard work, dedication, and the careful management of their family’s wealth at risk. Whether it’s analyzing your current property and life insurance or performing inventory and appraisal services, Westover will help ensure that your family’s assets are protected so they can be used specifically in the way you want.
Wealth Transfer Planning
One of the most important benefits of utilizing a family office is the full-scale ability to plan for the transfer of wealth. Westover will help you develop and define your objectives as well as examine a multi-generational snapshot of your existing strategies. We will evaluate any legal and tax strategies under consideration and perform financial modeling of alternative strategies. As a true partner with your family, we create an action plan to implement changes and thoroughly explain the plan to educate all owners and stakeholders.
Giving back to others and caring for those who are less fortunate are the cornerstones of estate planning for many families. To maximize contributions to causes that are most important to you, Westover helps determine multi-generational objectives, set up personal giving programs, manage private foundations, and provide training for foundation trustees. We also assist with the often difficult tasks of governance and board development as well as foundation and grant administration.
Busy schedules can easily be consumed by the responsibilities that accompany day-to-day household operation. To simplify your life and the lives of your loved ones, Westover will provide important ancillary services such as personal bill paying, procurement of domestic help, payroll, property management, and family-specific travel management.
One Stop; One Shop
Other family office services offered by Westover include the full integration of your financial strategies, client information management with monthly, quarterly, and annual reporting, trusteeship services, and client family meeting education.
If you’re feeling overwhelmed by the hundreds of moving parts that comprise your financial and personal life, or if you think you might benefit from assistance in one or more of the areas above, give us a call for a detailed analysis and consultation. We’re here to help!
We’ve just come through a divisive mid-term election. Tomorrow is Thanksgiving, a time for families to share the love we have for each other and for us to reflect on the shared kindness we provide or should offer to strangers in order to make this a better world.
I am not in the habit of disclosing the identity of our clients, but in this instance am making an exception because the story is so perfect for this time of year, this Thanksgiving weekend. If you just can’t watch another five minutes of another boring football game or spend five more minutes watching another Dumbo float in the Macy’s day parade, I invite you to invest that time in this 4-5 minute video.
When I was an attorney, I represented a delightful Odessa, Delaware couple, Ron and Martha Starnes. In the course of that representation, I drafted their estate planning documents and handled their respective estate administrations when they died in 2002 and 2004. Martha was an educator while Ron was a Methodist minister, a master cabinetmaker and a beloved and respected man-about-town in Odessa.
Tomorrow is Thanksgiving, a time for families to share the love we have for each other and for us to reflect on the shared kindness we provide or should offer to strangers in order to make this a better world.
During the course of administering the Starnes’ estates, I came to know their son Ben, and he and his wife Margie became Westover clients in 2006. Today, he is the Chief of the Division of Vascular Surgery for the University of Washington’s School of Medicine, and as a Professor of Vascular Surgery, holds UW’s Alexander Whitehall Clowes Endowed Chair in Vascular Surgery. He is recognized nationally and internationally for his work in aortic pathology and vascular trauma. Before he joined UW Medicine, he spent 15 years as a medical doctor in the United States Army, serving three combat tours, one in Kosovo and two in Iraq. Ben and his wife Margie and their daughters live in the Seattle area, so they qualify as the most geographically distant of our U.S.-based Westover clients.
Margie just shared this news link with us which was produced by a local NBC Seattle television affiliate earlier this month. I don’t want to spoil the wonderful story and its uplifting message by telling you too much about it, so I’ll just mention a few words and phrases related to the story to engage your curiosity: Family road trip – Car breakdown – Kindness of strangers – POW war hero – Generational journey of discovery.
Please have a lovely Thanksgiving holiday, and should the political world make you start to feel angry with strangers, then watch this video again to be reminded of the higher purpose to which we all can aspire.
Last night was Halloween, a night when we warmly open our doors and hand candy to children dressed in all manner of costumes, hearing their squeals of laughter as they fill their Halloween bags. It’s an evening for reminding us of the joys of childhood and also the perfect night to close out Freddy Krueger’s month on Wall Street.
October truly was a Nightmare on Elm Street. Concerns abounded, principally focused on the trade war, rising interest rates, projected lower corporate earnings in 2019 and the weakening of the world’s economy outside the good old U.S. of A.
Does it make sense that one–fifth of Amazon could evaporate in thirty days and that this result would not ultimately prove illusory? I think more likely than not that it’s a Halloween trick.
I’d rather bring you a Halloween treat.
If this was a wrestling match, then in October those fears pinned our fifty-year low unemployment rates, our second quarterly 3+% GDP growth which is 50% higher than we experienced during the previous four years, our double-digit corporate earnings, our annual wage gains of 2.8% leading to what some experts have called the “best job market in a generation,” our increased consumer confidence and the impetus the economy received from reduced corporate tax rates.
All three market indexes fell and fell hard. The Nasdaq Index fell 9% for the month, making October the biggest monthly drop since November 2008. Amazon and Netflix, two tech favorites, both lost about one-fifth of their value. Stop. Reread my last sentence. Twenty percent of the entire market cap of Amazon disappeared in the snap of the market’s fingers which was as quick as David Copperfield makes a train or an audience disappear.
And it’s just as ephemeral, I believe.
Does it make sense that one–fifth of Amazon could evaporate in thirty days and that this result would not ultimately prove illusory? I think more likely than not that it’s a Halloween trick.
I’d rather bring you a Halloween treat.
To do that I’m reprising a story about children, their innocence and the lessons they teach us about markets. Titled “Batter Up,” I wrote this piece almost a decade ago, after the month of March 2009, but you’ll see it has special currency today. For those with short memories, March 2009 was the month stocks bottomed out and the market then began its ascent, a strong nine-year climb which, notwithstanding October 2018, has moved the markets four-fold from those 2009 lows. I hope you’ll enjoy:
“The stock market’s returns in 2008 were the worst in seventy years, and to make sure investors felt the pain, a Force of Evil saw to it that the first quarter’s equity returns for 2009 were the worst for any first quarter since 1939. Investors now know how Sonny Liston felt when Muhammad Ali knocked him out that May 1965 night in Lewiston, Maine.
The list goes on and on, but you get my point. The last six months have been a cruel hoax to the millions of honest, hardworking, play-by-the-rules folks. They feel not unlike candidate Tom Dewey surely felt forty-eight hours after he finished reading the November 1948 election night Chicago Tribune headline declaring him the victor in his presidential race against Harry Truman.
So how about reading some good news for a change? There are certain verities in life: The stars come out at night; so does a rainbow after a hard rain. The Atlantic has a majestic blue-green hue in the Caribbean, the Pacific in Hawaii. Multi-hued tulips bloom here in April.
And kids don’t know about those bad news items; they experience joy in new ventures, especially when they’re too young to “know better.” And adults get happiness in watching their efforts and enthusiasm.
Last month Randy and I spent three weeks in Santa Monica where we visited with our daughter, her husband and their two children, Vivian age four and Isaac age six. The last Saturday we were there, Isaac and his neighborhood friends had their first T-ball game. For those who don’t know, T-ball is to Little League baseball as pre-K is to elementary school.
A baseball is literally placed on a stationary tee at home plate, set to the height of the batter’s belt. The batter swats it and then all hell breaks loose. Nobody makes an out. You play until the kids or their parents are exhausted, or until the six o’clock cocktail hour comes calling, whichever comes first.
Helmets, most of them three or four sizes too big, are worn at all times, both while batting as well as when playing out in the field. Teams can be comprised of 15 or more kids per side, it seems. And no matter what, your kids play with a smile on their faces and laughter in their voices.
None of these kids had likely ever played anything more than catch. They knew not the rules of baseball, nor what defined winners or losers. They just knew how to have fun. We could learn from them. Here were some Life Lessons they began to comprehend without even knowing it, and I was reminded of while watching the youngsters. (The kids’ names and their spellings were provided by my daughter).
Lesson # 1. If at first you don’t succeed. . .
The first batter up was Vonne, age 5. Like the mythical Casey, he struck a mighty blow with his bat and . . . whiffed, missing both the ball and the T. Thrice more the Mighty Vonne swung and missed. In T-Ball, the West Coast version, you get not three but five whiffs before you’ve struck out. On his last attempt, he barely managed to clip the ball and it slowly rolled toward the pitcher.
Lesson # 2. In life, know where you want to go.
As the “pitcher” Cody, age 6, daintily bent to pick up the rolling ball, treating it like a flower to be plucked from her parents’ backyard, here came Vonne barreling into her, trying to get that pesky pellet before she did. He succeeded, only to learn from his umpire father George that first base, not the pitcher’s mound, was his intended destination.
Lesson # 3. Quit while you’re ahead.
A few batters later Jaxon, another 5-year old, stood on third base ready to score for his team, the Angels, when the next intrepid batter, Stella, hit the ball. Sure enough, Stella smashed one toward shortstop and Jaxon took off toward home. However, he didn’t stop upon landing there but rather continued sprinting toward first base. He actually nosed out Stella by an eyelash. Lesson number 3 was relayed to him by Jaxon’s laughing father.
Lesson # 4. Don’t believe everything you’re told.
Fugi, age six, was sent out to play second base by his manager-dad Glen with these words, “Go play second base, son.” Sure enough and taking his father’s words literally to heart, Fugi skipped out to the infield, his oversized hat wobbling on his tiny head, and jumped directly onto second base. From that perch, he fiercely defended his ground, even when teammate Everett tried to physically move him closer to first base.
Lesson #5. There’s joy in small things; before your game is over be sure to stop and smell the roses.
When the game ended, tied something like 35 to 35 after those two innings, all the parents and their kids had smiles and kind words for each other. It reminded me that great joys come from the simplest things. Bernie Madoff and friends to the contrary notwithstanding, life is not as bad as some would have us believe.
PS. The market went up 22% over those three weeks while I was out of town. One dear friend even texted me while I was in the L.A. airport waiting to return and beseeched me to stay an extra week.”
So there you have it. Don’t let the recent events of October cause you to lose your focus on the larger picture. We’ve had a great run for almost ten years. And today, our economic signs are as strong as they have been for that last decade. There’s always a Yin versus Yang, but if we call the Yin positive and the Yang negative, Yin’s going to pin Yang. Unless markets totally decouple from their underlying fundamentals, this market should continue its march forward.
– by Matt Beardwood, CFP®, Director of Wealth Planning
If you ever find yourself singing along to a pop song for hours on end, you know how difficult it can be to get a catchy tune out of your head. The phenomenon is known as involuntary musical imagery (INMI), or what is more colloquially referred to as an “earworm.” Earworms are extremely common and are often triggered by either seeing words that remind one of a song, hearing a few notes from a song or even the emotion or feelings one associates with a song. As I reached out to a client last week to extol the virtues of a Roth IRA conversion for him and his wife, the song “I’m a Believer” kept running on an endless soundtrack in my mind.
A Roth conversion is a planning strategy that’s been around for 20 years but has become a potential cause célèbre in 2018.
At Westover, we have long said “Listen to the Music,” going back to that section of the newsletters Murray wrote for more than 15 years, which have tied music to markets. Chip and I are carrying on his Westover-music connection. Yesterday, Chip tied his market commentary to a Van Morrison song. I’m connecting my wealth planning commentary to this one composed by Neil Diamond. “I’m a Believer” reached the number-one spot on the U.S. Billboard Top 100 in 1966. This catchy, toe-tapping single was the top-selling record for all of 1967. More than 50 years later, it is considered a pop classic. (Check out this iconic YouTube clip HERE.)
So, you ask, why all the fuss about a ’60s song and what triggered that earworm for me today? It’s because it’s a perfect manifestation of my belief in the efficacy of Roth IRA conversions for some of our Westover clients.
A Roth conversion is a planning strategy that’s been around for 20 years but has become a potential cause célèbre in 2018. The three key benefits from converting a part or all of your traditional IRA to a Roth are:
1. Roth IRAs provide the ultimate benefit in retirement — tax-free income forever. Unlike a traditional IRA, all Roth IRA withdrawals are tax-free as long as you take them after age 59½. You have to pay tax at the time of the conversion. However, the lower marginal tax rates that took effect this year make the conversion of a traditional IRA to a Roth IRA significantly less expensive than it was in years past. With tax rates scheduled to revert back to pre-2018 levels or higher in 2026, or possibly even sooner depending on the actions of the parties who are controlling Congress in the interim, paying income taxes now at current rates could be far less expensive than in the future.
2. No Required Minimum Distributions (RMDs). Traditional IRAs mandate that you start taking withdrawals at age 70 ½. What’s worse, the amount you must take is predetermined based on your life expectancy and you must pay ordinary income taxes on the distribution. With a Roth IRA, so long as you have owned your Roth IRA for five years, the timing and amount of distribution are entirely up to you. And, repeat, there are no taxes for any of the withdrawals.
3. Tax-free to your heirs. Any Roth IRA monies you leave your heirs will be tax-free. Roth IRA distributions are not only tax-free to you; they remain tax-free to anyone who inherits them. If you plan to leave an inheritance to your children or grandchildren, making it in the form of a Roth IRA is a way to ensure that they don’t inherit a future tax bill too.
There are instances where a conversion may not make sense, but if you like what you hear about Roths, contact us. We would welcome the opportunity to review your particular circumstance and give you our best thinking.
“When it’s not always raining, there’ll be days like this” – Van Morrison
If Van Morrison was an investment advisor rather than a musician, he may have chosen “months” rather than “days.” As October comes to a close, it’s on pace to be the worst month since February of 2009 which effectively marked the end of the financial crisis bear market. On Friday, the S&P 500 index officially entered correction territory as it had fallen 10% from its recent high made just over a month ago on September 21. That marks the second 10% correction in 2018 representing a complete reversal in levels of market volatility relative to the historically calm calendar year 2017.
There are a number of reasons for the recent sell-off. Rising interest rates have begun to hurt those industries of the economy sensitive to rates, namely housing and autos. Escalating trade tensions between the two biggest economies in the world, China and the U.S., have increased uncertainty in the business community’s global trade outlook. Geopolitical tensions and political polarization has increased anxiety in the consumer economy. And finally, despite some encouraging signs last year, the global economy excluding the U.S. continues to struggle mightily.
The Impact of Recent Earnings Reports on the Market
Recent earnings reports from globally integrated, economically cyclical companies in the industrial, material, financial and semiconductor sectors have, in general, disappointed the market. And the recent market sell-off has inflicted some pretty significant technical damage to most market indices. The market will need some time to digest these disappointing earnings reports and technical damage. For those reasons, we have taken a close look at our clients’ equity targets making sure portfolios are not overweight stocks. We’ve also lightened up on those economically sensitive sectors like industrials and materials.
However, we still believe that this will be a garden variety correction rather than the start of a severe bear market. What gives us confidence is that two of the most accurate predictors of recessions do not show a recession on the near-term horizon.
Recent earnings reports from globally integrated, economically cyclical companies in the industrial, material, financial and semiconductor sectors have, in general, disappointed the market.
What the Leading Economic Indicators are Telling Us
The Leading Economic Index is made up of 10 economic indicators that show the health of the economy. Before each of the last 7 recessions, this index has turned negative on a year over year basis. For example, when it turned negative in August of 2006, a recession followed 16 months later. It turned negative in November of 2000 and a recession began 5 months later. Last month, it posted a positive 7% gain suggesting we are a long way from a recession.
The other accurate predictor of recessions is the slope of the yield curve. It has inverted, meaning short-term interest rates are higher than long-term rates, before each of the last five recessions. And on average, it inverts almost 2 years before the recession begins. This indicator is not nearly as encouraging as the LEI, as the slope has flattened severely since the Fed began increasing rates. However, it still has not inverted which suggests that even if it inverted today, we would have some time before the stock market reacted to a looming recession.
We are also encouraged by historically low unemployment, GDP growth estimates that are stronger than recent history, and corporate tax reform that has left U.S. companies more globally competitive and with more cash to invest. In addition, combining this year’s double-digit earnings growth with a declining stock market has left stock markets at very reasonable valuations.
As always, we are monitoring the markets and economic data closely, and are doing our best to both grow and protect our client’s portfolios. If data and company results begin to tell a different story, we will make the necessary changes to adapt. For now, we continue to believe the secular bull market will continue and stocks remain the best place to invest.
This rain will stop, but it’s never any fun getting wet.
When I began my career in this business in 1997, the internet stock bubble was still expanding, and the retail (individual) investor was participating in a big way. The previous year, 1996, saw the birth and subsequent explosion of online trading with companies like Charles Schwab, E-Trade, and the three companies that would eventually become TD Ameritrade leading the way.
Actually, this was the second wave for retail investors to discover the excitement, rewards, and risks found in equity investing. The first wave occurred in the 1980s after the SEC banned the practice of fixed brokerage commissions, making investing more affordable for smaller investors. To appeal to this growing new class of investors in the ‘80s and late ‘90s, publicly traded companies commonly split their stock. Stock splits don’t affect the overall value of the company, but they lower the price per share and make it easier for smaller investors to purchase.
According to data from S&P Dow Jones Indices, there has been an average of 44 stock splits per year since 1980. After the demise of fixed commission prices, there were 114 splits in 1986, and from 1998 to 2000, there was an average of 91 splits per year.
The growth of ETFs has had a significant impact on the frequency of stock splits, and thus on the average price an investor pays for one share of stock.
From the wreckage of the internet bubble burst in the early 2000s, there emerged a new instrument to entice the retail investor: exchange-traded funds (ETFs). These funds can be described as a “basket of securities” based on a particular exchange. The growth of ETFs has had a significant impact on the frequency of stock splits, and thus on the average price an investor pays for one share of stock. Rather than buy shares of stock in individual companies like they did in the 1980s and 90s, small retail investors now buy ETFs.
The Impact of ETFs
Due to the rising popularity of ETFs, companies no longer cater to the individual investor, choosing instead to court the ETF provider. You can see this phenomenon in the number of companies executing stock splits. In the past ten years, the average number of splits per year has plummeted from 44 on average to less than eleven. Last year, there were a grand total of five.
The impact has been remarkable, especially for investment portfolios with less than $100,000 in assets. Fifteen years ago, the average price of a share of stock of an S&P 500 company was $36.53. Today, that average is $117.63, an increase of over 300%. This new high-price environment makes it difficult for smaller accounts to properly invest in individual companies. For example, one share of Amazon in a $10,000 account would comprise nearly 20% of the account. Add in a share of Google/Alphabet, and that’s another 12%.
Fifteen years ago, the average price of a share of stock of an S&P 500 company was $36.53. Today, that average is $117.63, an increase of over 300%.
At Westover Capital, we are core believers in diversification. Whether a large account or small, we will always use the appropriate investment vehicles to maintain diversification while managing tax consequences.
Please don’t hesitate to reach out to us with any questions about ETFs and the evolving state of investing and markets.
– by Matt Beardwood, CFP®, Director of Wealth Management
In a frenzied, fast-paced, and rapidly-evolving world, there has been a growing movement in recent years that advocates for simplifying your life. Books, articles, and experts on television all seem to agree that doing things like reducing clutter, managing a pared-down schedule, and placing your focus on the people and things that are most important to you can make you healthier, happier, and reduce your stress.
“In character, in manner, in style, in all things, the supreme excellence is simplicity.”
Henry Wadsworth Longfellow
This principle applies to people from all walks of life. When Microsoft founder Bill Gates was asked what he learned from fellow billionaire Warren Buffett about managing his time, he said it was the importance of giving himself time to think. “You know, I had every minute packed and I thought that was the only way you could do things,” Gates told interviewer Charlie Rose. To prove the point, Buffett produced a small paper calendar that was almost completely blank, emphasizing the importance of managing the demands of a very high-profile position.
The Elegance of Simplicity
No matter where you fall on the economic spectrum, the elegance of simplicity is especially true when it comes to your finances. Credit cards are a great example. With one or two, you can easily track the due date, avoid late fees, ensure favorable and consistent interest rates, and, perhaps most importantly, protect your credit score. With eight or ten cards, however, the task becomes a lot more complicated and can take up time (and money!) that you’d much rather spend doing other things.
Different challenges and opportunities present themselves as you grow and accumulate wealth. In addition to checking and savings accounts, you may also have multiple investment accounts, loans, credit accounts, and trusts that are managed in different places by different people. The effective stewardship of these assets is critical, especially with instruments like IRAs (Individual Retirement Accounts) and 401(k) accounts that are accompanied by very specific tax and legal requirements.
The Advantages of Consolidation
It’s not unusual to have multiple retirement accounts spread across different companies. In fact, we often help clients ensure that they’re in compliance with IRS rules regarding these types of accounts. However, there are some clear advantages to consolidating retirement accounts and simplifying this process.
Efficiency – Consolidating several retirement accounts into one is the most efficient way to manage these assets. Instead of calculating contributions and RMDs (Required Minimum Distributions) across several accounts, which creates the possibility of missing one or more, everything is in one place.
Savings – If you have one or more advisors managing multiple retirement accounts, you are likely paying separate fees for each account and the activity it generates. Consolidation can save you money on both management and transaction fees. Not only that, but if you don’t revisit accounts from previous companies or positions, your investment elections will remain the same as when you left them. Just like your wardrobe, you probably don’t want your portfolio to reflect choices from the late nineties!
Reporting – One of the biggest advantages to combining your retirement accounts into one account is consolidated reporting. It’s difficult to get a full and complete financial picture if you’re trying to interpret it across several different reports and accounts.
Compliance – As we’ve mentioned, the IRS is very specific about the treatment of both IRAs and 401(k) accounts. There are different rules that apply to each, and special circumstances that must be taken into consideration to avoid additional taxes and penalties. With a single account, you can be assured that you’re not exceeding contribution limits and that you’re taking the appropriate distributions every year.
You may be wondering what happens when the confusion created by multiple retirement accounts causes an error or breaks IRS rules. The consequences for not taking the correct RMD every year can be costly, with penalties of up to 50 percent. So, for example, if your RMD is $20,000, you’ll be hit with a $10,000 penalty in addition to the tax you already owe.
If you’ve made an honest mistake by not taking the proper RMD, you can correct the error and petition the IRS to waive the 50 percent penalty. In most cases, they will do so.
Fortunately, there are remedies for this situation. The rules accompanying retirement accounts are in place to prevent tax avoidance. If you’ve made an honest mistake by not taking the proper RMD, you can correct the error and petition the IRS to waive the 50 percent penalty. In most cases, they will do so. However, you’ll still be required to amend tax returns for any prior years that were affected by the error. Needless to say, it’s much easier to consolidate your accounts than to wrangle and trade piles of paperwork with the IRS!
At Westover, we help clients simplify their financial lives. If you’re feeling overwhelmed or concerned by multiple accounts and points of contact for your assets, we’re here to help.
The September 2018 Westover Luncheon Series featured Dr. Reid Huber, Executive Vice President and Chief Scientific Officer of Incyte Corporation, a bio-pharmaceutical company headquartered in Wilmington. Below is a replay of the luncheon.
At Westover, we’re believers in excellence – in the advice and services we provide our clients, and in all we do. We recognize and appreciate others who do the same. To that end, one of our favorite books, and one we often gift to clients to welcome them to the fold, contains superb wildlife and nature photos by Thomas Mangelsen, the renowned American naturalist and wildlife photographer. You may not recognize his name, but you will likely recognize his work.
A native of Nebraska, Tom has traveled the world for over 40 years observing and photographing the Earth’s last great wild places. Each of his photographs tells a story. The one below – “Catch of the Day” – is referred to by many as the most famous wildlife photograph in the world. You may remember this photo from the cover of Tom’s book, “Images of Nature: The Photographs of Thomas D. Mangelsen.”
In a recent episode of 60 Minutes, Anderson Cooper visited Tom. During the segment, Cooper went to Tom’s home along the Platte River to witness one of America’s great annual wildlife migrations, that of ducks, geese, and cranes as they soar through this valley going south for the winter.
Mangelsen’s art and his knowledge of natural history highlight the importance of maintaining a balanced and diverse ecosystem. Similarly, at Westover, we believe in constructing balanced investment and retirement portfolios that will withstand the rigors of market downturns and still participate in market upturns. As with the geese, our markets could migrate southward in time.
Just as Mangelsen puts his wildlife front and center in his photos, we also believe in providing advice and constructing wealth advisory plans which meet our clients’ needs for retirement, tax planning, Roth conversions, estate planning, charitable gifting, and more. We do this, always, with our clients’ interest, not ours, at the forefront of the picture.
As we go forward, we will continue to provide you with experiences, information, and services which are above the ordinary. We invite you to let us know when we succeed.