Mike Piershale on “Mike in a Minute:” Receiving a large tax refund

On the latest “Mike in a Minute,” Mike Piershale outlines financial strategies to consider upon receiving a large tax refund this season. Click on the video segment below to hear Mike’s insight.

Weekly market commentary

The People's Republic of China (PRC) appears to have taken the words of American industrialist Henry Ford to heart. Ford said, "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible."

Last week, we learned from CNBC China's annual trade was more than $4 trillion in 2013. That pushed the PRC ahead of the United States and gave it standing as the world's biggest trader. According to The New York Times, China's annual trade surplus, in U.S. dollar terms, was the largest since 2008 and 12.8 percent ahead of 2012's surplus. In other words, China exported more than it imported.

It's interesting to note imports to China increased significantly. In fact, imports rose more than exports which reflects strong domestic demand, according to an expert quoted by CNBC. That demand may have been driven by rising wages and a growing middle class. The New York Times wrote:

"Export gains... suggest that despite years of predictions of trouble for China's export juggernaut, it has not yet been derailed by fast-rising costs for blue-collar labor, by an appreciating Chinese currency, or by foreign investment shifts toward other, lower-wage Asian countries... Blue-collar pay has soared between fivefold and ninefold in dollar terms in the last decade, wrecking China's reputation as a low-wage place for export-oriented manufacturing... A decade ago [a company] paid about $75 a month for entry-level industrial workers and provided virtually no benefits. Now, [a company] pays $570 a month plus $100 a month in government-mandated benefits."

The Economist forecast China's economy will overtake the United States' in 2019 if economic growth averages 7.75 percent a year in China and 2.5 percent in America and inflation averages 4 percent and 1.5 percent, respectively, between 2010 and 2020. In late 2013, the Organization for Economic Cooperation and Development forecast growth in China would accelerate to about 8.2 percent with 2.4 percent inflation during 2014, according to Reuters. Growth in the United States is estimated to be 2.8 to 3.2 percent with inflation of 1.4 to 1.6 percent for the year, according to the Federal Reserve.

Is the glass half full when it comes to unemployment, or is it half empty? You're probably familiar with that famous saying about the three types of lies: there are lies, damned lies, and statistics. When trying to parse the implications of economic data from government and non-government organizations, the myriad of ways in which statistics can be sliced and diced quickly becomes apparent.

December's jobs report, which was released last week, is a prime example. The unemployment rate fell from 7.0 percent to 6.7 percent; however, just 74,000 jobs were added in the United States during the month. That's less than one-half the number of jobs economists had anticipated. So, there was less unemployment, but the number of new jobs created didn't meet expectations. Does that mean the employment picture is weaker than experts thought?

Not necessarily. According to The Economist:

"Payroll gains were revised up in November to 241,000 (from 203,000) suggesting that some of December's hiring may have been pulled forward. The two-month average of 157,000 is probably a better picture of reality than either month's tally. Finally, the household survey, which while typically more volatile is still a useful check on the better-known survey of employer payrolls, shows employment rose 143,000, one reason the unemployment rate plunged to 6.7% from 7%."

Does that mean the employment picture is positive?

Not necessarily. The number of people participating in the labor force in the United States was trending south before the recession started back in December of 2007. Our workforce has been shrinking because of cyclical factors, like people giving up on finding jobs because jobs are hard to find, and structural factors, such as Baby Boomers retiring and the participation of women in the workforce has been leveling off.

All in all, 3.9 million Americans (that's about 38 percent of all unemployed workers) have been unemployed for at least 27 weeks. Are they discouraged? Have they retired? Are they raising children? There are probably some statistics out there that could provide further insight.

Weekly Focus - Think About It


Sources:
http://www.brainyquote.com/quotes/quotes/h/henryford151869.html#AQTkZcshWzObyKCq.99
http://www.cnbc.com/id/101325240
http://www.nytimes.com/2014/01/10/business/international/chinese-exports-withstand-rising-
labor-costs_html?partner=yahoofinance&_r=o
http://www.investopedia.com/terms/trade-surplus.asp
http://www.economist.com/blogs/graphicdetail/2013/11/chinese-and-american-gdp-forecasts
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtab120131218.pdf
http://www.brainyquote.com/quotes/quotes/m/marktwain128372.html
http://www.bls.gov/news.release/pdf/empsit/pdf(pages1-2)
http://www.economist.com/blogs/freeexchange/2014/01/americas-jobs-report
http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf
http://www.dol.gov/opa/media/press/opa/OPA20140047.htm
http://www.brainyquote.com/quotes/c/confucius385565.html

Estate planning for all ages

When it comes to implementing financial strategies, many advisors would agree that estate planning is often the most overlooked element by their clients. Understandably so, it is tough for people to think about their own mortality and therefore, many tend to procrastinate on these plans. However, setting up an estate plan is vital to a client’s overall financial success, and can avoid major headaches for younger generations who may inherit any wealth.

Below, we outline important estate planning strategies to consider:

For younger clients in their 20's and 30's, it’s important to focus on two categories:

If you are responsible for yourself, and do not have children: At a minimum, a younger person who is living on their own should have papers for incapacity. Such papers state who will make decisions on your behalf if you become incapacitated. These documents include a medical healthcare directive, Power of Attorney, and a living will. Additionally, for a younger person who has accumulated assets, their net worth could be subject to probate without a proper estate plan if they die unexpectedly. In most cases probate creates unnecessary expenses and time for heirs. Every state has probate guidelines, with varying levels of net worth limits, so for younger clients with substantial assets above these limits, it is wise to have a trust that will avoid probate.

If you have children: For younger clients that have children, it’s vital to implement the plans mentioned above, and to have language in their estate plan that addresses guardianship. Without this language, if you pass away, the courts can decide who takes care of your children, and it may not be the best fit for either party.

At Piershale Financial Group, we typically work with clients who are nearing or in retirement, and therefore certain issues -- such as guardianship of a child -- are not as pressing as they might be to a younger generation.

For the older generation, who at this point has accumulated assets, estate plans typically address certain goals common to this age group. The first goal should be to avoid probates which for those with assets, can create substantial unnecessary expense for the heirs. Probate can be easily avoided with a properly executed trust. Additionally, plans should also be structured to avoid death tax, and (as previously discussed) focus on who will make decisions on your behalf if you are incapacitated.

It may not be pleasant to think about, or discuss with your family, but creating an estate plan that covers all the bases will allow you to easily pass inheritances and assets down to younger generations, saving them the stress or aggravation that otherwise would come when having to deal with probate.

Mike Piershale on “Mike in a Minute:” Owning employer stock

Mike Piershale weighs in on the consequences of employees owning too much company stock in his latest “Mike in a Minute” segment. Check out the video below to hear more about the dangers associated with such an investment.

Weekly market commentary

Like a half-full bottle of champagne that was left uncorked overnight, stock markets were anything but effervescent during the first few days of 2014.

On Tuesday, December 31, the Standard & Poor's 500 Index (S&P 500) bubbled upwards, finishing 2013 at an all-time high. On Wednesday, markets were closed as Americans celebrated the New Year. On Thursday, despite relatively positive economic news, the S&P 500 suffered its worst first-day-of-the-new-year performance since 2008. Is it a hangover? Is it lethargy? Are people still on holiday?

Some folks think a key issue is concern about the Fed's changing monetary policy. MarketWatch suggested investors are wary about the timing of and reasoning behind the Federal Reserve's decision to taper quantitative easing (QE) this month, as well as conflicting comments made by Fed officials. Last Friday, Philly Fed President Charles Plosser suggested the U.S. central bank may need to become aggressive about raising rates. His comments don't square with those of outgoing Chairman Ben Bernanke who has said rates will remain near-zero for some time to come.

Plosser's comments raise red flags because tapering QE is not the same as tightening monetary policy. Tapering is simply providing less economic stimulus. If the Fed raises rates, it will be tightening monetary policy. Generally, tighter monetary policy is used to constrict too-fast economic growth or curb rising inflation. Barron's may have provided some insight into Plosser's statement when it declared:

"...We also suspect U.S. and global economic growth will quicken more than most anticipate...Stronger economic growth combined with a further tightening in the resource markets (i.e., expect the unemployment rate to decline toward 6% by year-end and for the factory utilization rate to rise above 80% during the year) may lead to a modest rise in the U.S. inflation rate and produce the first "inflation scare/overheat/can the Fed exit fast enough" panic of the recovery."

Hold onto your hats! The minutes of the Fed's Open Market Committee meeting will be available this Wednesday and the way in which they're interpreted could buffet markets.

What makes a great invention? It probably depends on who you ask. The angel investors (a.k.a. sharks) on the television reality show Shark Tank share their opinions on air, and Time Magazine recently revealed its thoughts in print when it published, "The 25 Best Inventions of the Year 2013." The article suggested a great invention solves either a problem people thought couldn't be solved (such as helping quadriplegics walk) or a problem they didn't realize needed to be solved (who knew we needed a cronut - the offspring of a croissant and a donut - or an invisible skyscraper). Among Time's top inventions for 2013 were:

• The Smart Lens: (slide 5) Ever been frustrated by the low resolution of photos snapped with your mobile phone? Now, you can attach a smart lens and your smart phone will take pictures like a high performance camera and save them online automatically.

• The edible password pill: (slide 10) Nope. It's not on the market yet but, sometime in the future, you'll be able to swallow a pill with breakfast. The chip inside will be powered by stomach acid and make your body into its own unique personal password every single day. The FDA has already approved it.

• The 3Doodler: (slide 12) If you think 3D printing is neat, check out the 3Doodler. It's a pen that melts and cools colored plastic so you can sketch and scribble actual structures. It's the more sophisticated brethren of Popsicle sticks and pipe cleaners.

• Artificial memories: (slide 14) It's likely to be just as controversial as cloning and the human genome, but scientists at MIT have managed to implant false memories in mice. They hope human applications will help treat depression and post-traumatic stress.

From the wheel to disposable diapers to the worldwide web, inventions have powered new industries and changed lives. So, are our most inventive days behind us? There are a few pessimists out there, but the Time Invention Poll found more than one-half of respondents think there are plenty of great inventions ahead. Where will they be discovered? Those polled said the United States, China, Japan, India, South Korea, and other nations.

Weekly Focus - Think About It.

Sources:
http://online.barrons.com/article/SB50001424053111904742804579284810328140946.html?mod=BOL_article_full_popview#text.print (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-06-14_Barrons-Splits_Dive-Cheap_Stocks_Thrive-Footnote_1.doc)
http://www.marketwatch.com/story/stock-market-to-find-out-if-the-fed-made-the-right-move-2014-01-05
http://www.investopedia.com/terms/t/tightmonetarypolicy.asp
http://online.barrons.com/article/SB50001424053111903675404579298633659690604.html?mod=googlenews_barrons#articleTabs_article%3D1 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-06-14_Barrons-How_to_Play_2014s_Surprise_Economy-Footnote_4.doc)
http://techland.time.com/2013/11/14/the-25-best-inventions-of-the-year-2013/
http://www.sony.co.uk/hub/lens-style-camera
http://techland.time.com/2013/11/14/the-time-invention-poll/
http://www.brainyquote.com/quotes/quotes/e/erichfromm151839.html

Mike Piershale on “Mike in a Minute:” Government shutdown & tax filing season

Welcome back to “Mike in a Minute!” Today, Mike Piershale will outline how the 2013 government shutdown will impact tax filing season this year. Given the 16-day shutdown, the IRS will not process tax refunds until late January or early February, delaying refunds for millions. Click on the video segment below to hear more.

Mike Piershale on “Mike in a Minute:” Financial New Year’s resolutions

On today’s “Mike in a Minute,” Mike Piershale weighs in with financial New Year’s resolutions and explains what people should do to remain financially secure throughout 2014. Mike explains specific strategies to consider, such as paying down credit card debt and implementing more savings into a 401(k).

Weekly market commentary

To borrow a word from the legendary Gomer Pyle: G-o-l-l-y!

In 1955, just five years before The Andy Griffith Show became a big hit, William McChesney Martin, Jr., then Chairman of the Board of Governors of the Federal Reserve System, made an often-quoted speech in which he said, "The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."

Last week, Fed Chairman Ben Bernanke didn't confiscate the punch. He simply modified the recipe by adding a lower proof of spirits when he announced the Fed would begin to taper its bond buying program. Starting in January, the Fed will spend $10 billion a month less on bonds (the amount will be evenly split between Treasuries and mortgage-backed securities). Taking away the punch bowl would have entailed ending all bond purchases and increasing the discount rate. The Fed has indicated it will not change the discount rate for some time.

After an initial dip on the news of impending tapering, many markets around the world moved higher. The Dow Jones Industrial Average and the Standard & Poor's 500 Indices pushed to record highs. Britain's FTSE 100, Germany's Dax, and France's CAC indices all pushed higher on Wednesday, as did Japan's Nikkei 225 Index. In the bond market, U.S. Treasury yields rose and then fell on the day of the announcement.

The beginning of the end of quantitative easing wasn't the only news that drove markets higher last week. On Friday, the U.S. Commerce Department reported that U.S. gross domestic product (GDP) - a measure of our nation's productivity - accelerated faster than originally thought during the third quarter. The reasons for the upward revision were increased consumer and business spending.

Life may have been simpler in fictional Mayberry R.F.D. - and they certainly had fewer choices as consumers - but economics and the responsibilities of the Federal Reserve weren't any less complicated.

IN THE EARLY DAYS OF BANKING IN THE WILD WEST, THERE WEREN'T too many rules about what banks could and couldn't do. According to The New York Times, in the early 1900s:

"...Commercial banks established security affiliates that floated bond issues and underwrote corporate stock issues. (In underwriting, a bank guarantees to furnish a definite sum of money by a definite date to a business or government entity in return for an issue of bonds or stock.) The expansion of commercial banks into securities underwriting was substantial until the 1929 stock market crash and the subsequent Depression."

After the crash, thousands of banks failed.

In 1933, Congress passed the Glass-Steagall Act (a.k.a. the Banking Act). The Act defined the difference between commercial and investment banking activities. Commercial banks primarily took deposits and made loans while investment banks helped companies issue stock and invested in securities. The Act prohibited commercial banks from participating in investment banking activities. It also created the Federal Deposit Insurance Corporation (FDIC) whose job was to protect commercial banks' clients' deposits up to a certain amount.

In 1999, after years of financial prosperity, Congress changed its mind and passed the Gramm-Leach-Bliley Act (GLBA) which effectively repealed the parts of Glass-Steagall that prevented commercial banks from participating in investment banking activities. Some believe the change in rules played a significant role in the global credit crisis during which commercial banks suffered billions of dollars in losses because of their investment banking activities.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in response to the global credit crisis and subsequent government bailout. The 953-page Volcker Rule is part of the Act and was passed by regulators in December of this year. It establishes a set of rules that are intended to prevent FDIC-insured banks from making risky bets with customers' deposits. In particular, banks that rely on taxpayer guarantees are largely prohibited from proprietary trading and hedge fund investments. We'll know more when regulators decide how the rules will apply and who will enforce them.

George Bernard Shaw said, "We are made wise not by the recollection of our past, but by the responsibility for our future." Let's hope when it comes to U.S. banking law, he proves to be right.

Weekly Focus - Think About It.

Sources:
http://fraser.stlouisfed.org/docs/historical/martin/martin55_1019.pdf
http://blogs.barrons.com/stockstowatchtoday/2013/12/18/markets-toast-taper-news-send-dow-sp-500-to-record-highs/?mod=BOL_hp_highlight_1
http://online.barrons.com/article/SB5000142405311190439900457926371932942350.html
http://www.bbc.co.uk/news/busioness-25442514
http://blogs.barrons.com/incomeinvesting/2013/12/20/u-s-third-quarter-gdp-growth-accelerates-to-4-1/?mod=BOLBlog
http://topics.nytimes.com/top/reference/timestopics/subjects/g/glass_steagall_act_1933/
http://www.investopedia.com/articles/investing/062513/role-commercial-banks-economy.asp
http://investopedia.com/terms/g/glass/steagall_act.asp
http://www.investopedia.com/terms/g/glba.asp
http://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp
http://economix.blogs.nytimes.com/2013/12/13/a-modest-volcker-rule/
http://www.brainyquote.com/quotes/authors/g/george_benard_shaw.html
http://www.brainyquote.com/quotes/topics/topic_funny.html#HPdj8ZiBwRJQmmxX.99

Mike Piershale on “Mike in a Minute:” 2014 Market Outlook

Welcome back to “Mike in a Minute!” On today’s segment, Mike Piershale explains where he thinks the market is headed in 2014, and what investors should expect over the long-term. Press play below to hear Mike’s outlook, and why he thinks investors may see rising interest rates and a domestic market correction.

USA Today coverage: Retirement savings for the self-employed

Despite the benefits that self-employment offers, a recent study found that entrepreneurs and longtime business owners are running into difficulties when it comes to retirement savings. According to TD Ameritrade’s Self-Employment and Retirement survey, 40 percent are not saving regularly for retirement.

In a recent article for USA Today, I weighed in on why retirement savings for the self-employed is underutilized, the threats facing one who does not save, and what an advisor can do to help. “Most small-business owners aren't knowledgeable about retirement, because they focus on their business at the expense of everything else,” I offered. “For the first few years, it's nip and tuck. They are human resources, the accounting department, marketing department, and IT department.” Furthermore, the self-employed often invest all their profits directly back into their business as an alternative to a company retirement plan.

The following link will take you to the full article written by reporter Rodney Brooks –
“Self-employed face a retirement crisis”

Mike Piershale on “Mike in a Minute:” Holiday budgets

With the holidays in sight, Mike Piershale outlines budgeting plans in his latest “Mike in a Minute” segment. He reminds viewers of important financial strategies that will help over the short- and long-term.

Mike Piershale on “Mike in a Minute:” Year-end financial plans

On the latest “Mike in a Minute,” Mike Piershale discusses important wealth management plans for viewers to consider before the New Year. He outlines 401(k) strategies, recommends maximizing retirement contributions, and explains the importance of creating a solid estate plan.

Mike Piershale on “Mike in a Minute:” Year-end tax plans

For today’s “Mike in a Minute” segment, Mike Piershale weighs in on year-end tax tips to consider implementing over the coming weeks. Press play below to hear the most important strategy, and how changes in income can impact your tax and financial plans.

WSJ coverage: New Year, New Financial Plans

Despite the chaos, and the joy, that the holiday season brings, it is important not to let year-end financial considerations and deadlines fall by the wayside. Critical decisions that investors must contemplate include: boosting 401(k) contributions, funding a 529 college-savings account, considering IRA distributions, and making charitable contributions and gifts. However, these are only a few of the important year-end considerations worth discussing.

In a recent article for the Wall Street Journal, I weighed in on one critical year-end financial step that investors should be aware of: booking capital losses. One can use capital losses to offset any capital gains tax-free. “If you're carrying investments at a loss—say, mutual funds that have dipped several thousand dollars in value since you purchased them—you might consider selling them by Dec. 31 to realize capital losses,” I offered. “Then use these to offset gains from other sources.” Additionally, if an investor particularly likes these mutual funds for the long-term, they can always be bought back in the new year, 31 days after the sell.

The following link will take you to the full article written by contributor Lindsay Gellman – “Financial moves you should make by New Year’s.”

Thanksgiving Thank You

With the holidays upon us, we wanted to take the time to thank our clients and blog readers. It is our goal to provide you with outstanding services and insight, and we appreciate the confidence that you have placed in us as we work together in solidifying your financial objectives. We thank you for working with us and look forward to a successful New Year.

From everyone at Piershale Financial Group, we hope you have a wonderful Thanksgiving.

Part-time retirement and its impact on income

Earlier this month, I was included in a Financial Planning magazine article, written by reporter Martha White, which detailed how working part-time in retirement can alter a client’s overall financial plan. The piece covered elements such as Social Security, health care costs, portfolio changes, and the impact that working in retirement can have on taxes.

Upon entering retirement, it is typical that an individual or couple drops down one tax bracket. However, I explain that for those that choose to work during their golden years, if their income is higher, the taxes they pay will therefore be higher.

So, what strategies can you use to lessen your tax hit if you choose to work during retirement?

• Take advantage of all qualified plans:
• Maximize 401(k) contributions
• Check to see if you qualify to get a tax reduction on an IRA
• Don’t convert to a Roth IRA if you are close to retirement and/or in a tax bracket which is 25 percent or higher
• Consider an annuity

To read the full article for more insight, click here—Financial Planning, November 2013 Issue.

Europe’s energy crisis

I contribute regular columns to my local paper, the Northwest Herald. For my latest piece, I decided to address the energy crisis plaguing many European countries. Citing the shale boom that has restored energy confidence in the US, I discuss why Europe has not shared that same fate.

The green energy trend hit Europe hard, but it has yet to deliver “reliable and competitive” energy. Additionally, as shale becomes cheaper and more abundant in the US, Europe is not yet taping into any of its shale reserves, due to solar and wind power solutions requiring attention.

Read the entire piece through the following link and check back to the blog soon to see what we are covering next - http://www.nwherald.com/2013/10/22/europe-has-an-energy-problem/aotnorn/.

Forbes coverage: The pros and cons of investing in your employer’s stock

Making headlines earlier this month, Google’s stock price increased to $1,000 per share, boosting the investment portfolios of nearly 46,000 employee shareholders. While the uptick was great news for these employees, financial advisors are usually cautious when it comes to holding too much company stock.

Published on October 22, Forbes reporter Maggie McGrath highlights the company stock holding issue and includes Mike Piershale in her column. For investors who want to put some of their wealth into company stock, Piershale suggests analyzing the long-term performance of the business. If it truly is a “good” company, he advises to not put more than 10 percent of their portfolio into that equity.

He also recommends taking advantage of NUA, which provides a tax deferral opportunity when investors take distributions from company-owned stock appreciations. To read the full article and learn more about company stock holdings, click here.

Mike Piershale on “Mike in a Minute:” Tackling inheritance issues

In our most recent “Mike in the Minute” segment, Mike explains why financial advisers are essential during inheritance cases.

Mike explains the dangers of young heirs receiving a large sum of money and not knowing how to invest it. In the video, Mike suggests heirs hire a qualified financial adviser to help them make responsible financial decisions. For example, heirs benefit from establishing a retirement plan, because these accounts provide specific tax advantages for them.


What would you like to hear Mike explain in under a minute? Leave it in a comment and you might just see it as a segment on our YouTube channel.

Risk matters

It’s no secret that the last few years have been economically uncertain. The markets have been volatile, and while we still work to make our clients money, we have evolved our strategy to meet the ever-changing environment. We now aim to both advance and protect our clients’ assets.

One of the most powerful aspects of our Advance and Protect strategy that is normally invisible until the market drops is the fact that the rates of return are risk adjusted.

The goal of a risk-adjusted return is to reduce risk as much as possible in achieving any level of return.