Category Archives: Wealth Management

August 12, 2016

Gold is sometimes referred to as “The currency of fear” because it is often sold in late-night infomercials touted as a hedge against a future where your dollars or other investments are worthless. The truth is, while these “gold bugs” may tout gold as being a “safe” investment, historically gold has actually been quite volatile- sometimes fluctuating wildly within short periods of time. It has also been known to languish for long periods of time. That’s what makes this question difficult to answer; who knows what’s going to happen next?

Gold is a commodity whose value tends to surge when the economy is in a shaky spot. We saw this between 1978 and 1980 when the average price of gold surged from $193.40 to a peak of $850 per ounce in 1980. But after that, the Feds raised interest rates to curb inflation, and the price barely moved for two decades. It took 28 years, until 2008, for the price of gold to creep over $850 per ounce again. Then during the Great Recession of 2008, gold had a run again until September 2011, when it hit a high of $1921 per ounce. It dropped again for the next four years straight but has recently seen a slight uptick in value amidst the volatility experienced in the stock markets in the first part of 2016.

But looking at the current value of gold isn’t the best way to decide whether it has a place in your portfolio. Instead, you have to consider your personal timeline, objectives, risk tolerance, and tax bracket, to decide whether it’s the right commodity for you.

It is important to keep in mind that gold does not produce anything. It does not produce earnings or dividends or income of any kind. So if your objective is income, gold might not be the right investment for you. Even if you do end up making a profit off of it, gold is taxed as a collectible and not an investment. Capital gains on collectibles are taxed at 28% for long term and 35% for short term, rather than the 15% long term capital gains rates that most investors experience on other types of investments such as stocks and bonds.

At Kramer Wealth Managers, we look at all the various components of a portfolio when we’re helping you to design your WealthPath. We consider your timeline, your risk tolerance, the current market, and your personal retirement goals. Then, we help you develop the right mix of assets to realize your goals and prepare for the unexpected. Contact us today to schedule a meeting to discuss which kind of investments might be a good fit for your WealthPath.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

February 26, 2016

While there are many different aspects of life insurance policy design that you’ll want to understand before you take out a policy, the most fundamental thing to know is the difference between term insurance, universal insurance and whole life insurance.

Term Insurance

Term life insurance provides a death benefit if the insured passes away during a certain time frame specified within the policy. While the policy may have some added benefits attached (such as spouse or child coverage riders) there is no cash value associated with the policy, so there is no surrender value if it is terminated.

Because term life insurance covers a specified time period and has no cash value accumulation, it’s less expensive than other types of life insurance. Most people use this type of life insurance to cover a specific period of time such as to cover the 30-year term on their mortgage or to cover the period of time while their children are still dependents.

Whole Life Insurance

While a term policy only pays a death benefit if death occurs in a specified time period, a whole life policy will provide a death benefit for life—as long as premium payments are made on time. Additionally, the policy has level premiums and will accrue cash values, which grow tax-deferred at a guaranteed rate. Once the cash values reach the same value as the death benefit (usually around age 100) the policy will mature (or endow) and the value will be paid out to the owner.

Universal Life

Much like a whole life policy, a universal life policy is meant to provide death benefit protection for the insured’s entire life. The major difference between the two is that universal life policies offer some flexibility in death benefit and premium. Cash values for universal policies grow tax-deferred based either on prevailing interest rates or their growth may be tied to the performance of a chosen index. With underwriter approval, you can increase the death benefit of the policy so that it includes the cash value portion. You can also reduce your premiums over time—even stop paying them altogether—if your cash values grow sufficiently. Because interest rates can rise and fall, it’s important to continually monitor the cash value performance to ensure that future plans to stop paying premiums can be supported.

There are now many other types of life insurance policies as well such as those linked to investments, those that provide long term care benefits, UL policies with no-lapse guarantee riders, or other hybrid products. At Kramer Wealth Managers we can help you sort through the many options and design the best life insurance policy for your needs and expectations. Contact us today to make an appointment.

February 11, 2016

The amount of financial aid your children qualify for is heavily dependent on both your assets and theirs. All students interested in financial aid for college must fill out a FAFSA form (Free Application for Federal Student Aid). Let’s take a look at the formula FAFSA uses to determine financial need and the part your family assets play in it.

Parental Assets

FAFSA expects parents to contribute toward their child’s cost of college. The amount they expect the family to contribute is called the Expected Family Contribution (EFC). If the cost of college is more than the EFC, the difference is the amount of the student’s financial need.

EFC is determined by assigning a percentage of the parental assets and student assets toward payment of annual college costs. Of course, they don’t expect parents to spend their entire life savings on college so parents are given an emergency reserve allowance that’s subtracted from their total asset value. After they factor in the emergency reserve allowance, the remainder is called the available asset value. From that amount, they can expect to see 5.6% assigned as family contribution each year.

Also included is the income of both parents (except certain family-owned business income). After allowances, 22 to 47 percent of their income is included in the total asset value, from which the before mentioned 5.6% would be assigned as the expected family contribution.

Certain parental assets are not counted by the FAFSA, including home equity, retirement assets, life insurance cash values, and non-qualified annuities.

Student Assets

All custodial accounts are considered the student’s personal assets when it comes to determining financial aid eligibility. The FAFSA formula attributes 20 to 25 percent of these assets to the EFC each year. Because of this, it may be a good idea to consider transferring UGMA/UTMA assets into a college plan owned by the parent so they can be treated like parental assets and only 5.64 percent is attributed to EFC.

A student’s income also counts toward their expected contribution. Generally, 50 percent of their net income (minus certain allowances) is included. Any savings they have is also included at 20 to 25 percent.

Students with Disabilities

Some students with disabilities find additional financial resources through their state’s Department of Vocational Rehab (VR) agency. While rules vary by state, some VR funds may be available based solely on the student’s resources without consideration for the parental resources. However, the parental resources must still be reported on the FAFSA form, even when the student expects VR financial support.

Even with all of these assets considered, a student may still qualify for financial aid, subsidized loans, and scholarships. That’s why it’s important to complete the FAFSA and look for other supplemental funding opportunities, even if you think your assets might push you over the limit.

This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed, and the accuracy of the information should be independently verified.

January 15, 2015

We are often asked by clients and prospective clients how we are paid. In general, there are two different payment structures an advisor will have: fee-only and commission-based. Some advisors use just one method while others—such as Kramer Wealth—use a combination of the two for various services offered. Let’s take a look at each of these payment models in detail.

• Fee-Only Payment: When financial advisors work on a fee-only basis, they generally get paid for the plans they make for their clients, regardless of whether the client actually executes any of the suggestions on the plan. Clients may be charged an hourly fee or a flat fee for the service and it is paid directly by the client out of their pocket. Some fee-based planners may also get an annual management fee, which is a percentage of the assets managed and is generally deducted from the account balance.

• Commission-Based Payment: The second method of payment for financial advisors is a commission paid for the purchase or sale of certain insurance or investment products. Commissions are paid to the financial advisor directly by the investment or insurance company but come from the client’s account in one form or another. Some commissions may be deducted up front at the time of purchase in the form of a sales load or they may be deducted from the proceeds of a sell transaction. Still other commissions may be paid through the internal expenses built in to an investment or insurance product.

In some instances, you may find an advisor who gets paid salary and bonuses, such as wire-house brokers who are employees of the company they work for. Examples of these types of firms are Merrill Lynch, Morgan Stanley Smith Barney, UBS, and Wells Fargo. However, commission- and fee-based earnings are more common in the industry.

It’s always a good idea to understand how your advisor is getting paid so that you can be aware of any added interest they may have in the decisions you make. A good advisor will always point you toward investments and products that are right for your risk tolerance, goals and timeline. When you work with Kramer Wealth Managers to create your WealthPath, we make sure to focus on investments and products that will be best suited for you, regardless of the payment involved.

*The discussion of advisor fees should also state that investors should be aware that the deductions of fees will impact their overall account returns.

December 17, 2015

When you open an individual retirement account, more commonly known as an IRA, you need to choose a custodian to hold the account and its underlying assets. Two choices you have for custodians include banks and brokerage firms. It may seem like it doesn’t matter which custodian you choose but in fact, choosing the wrong custodian could mean the difference between having an IRA that lasts throughout your retirement and one that’s depleted before you’re ready.

The Restrictions of a Bank IRA

If your bank doesn’t offer extended brokerage services then you may not be able to invest your IRA contributions in stocks, exchange traded funds, or other market instruments. Instead, you may be limited to bank CDs, money market funds and savings accounts.

While it might seem safer to get a bank IRA and put your contributions into fixed investments, this may actually be a far riskier move than you’d expect. If you rely on a variety of fixed products in your IRA rather than a truly diversified mix of assets then you are likely to have a very low return that doesn’t keep up with inflation or taxes, much less grow to enough that you can support yourself through retirement. (See our other VLOG called “Inflation’s Devastating Effect on Returns”)

A general rule of thumb to help retirees preserve their savings while still using it for postretirement income is to take 4 percent withdrawals per year. With a truly diversified and well-managed IRA, this will often mean leaving your principal completely untouched and simply living off of the growth of your assets. But in a bank IRA where CDs rarely earn more than 1.5 percent and money markets don’t generally exceed 1 percent, even using the conservative 4 percent rule means you’ll be withdrawing from principal each year, leaving you less money to grow and forcing you to quickly deplete your savings.

Retirement planning is a complex task requiring in-depth information about your goals, objectives, risk tolerance, and time frame. It’s a personalized process that requires a tailored approach to account design. At Kramer Wealth Managers, we’re here to help get you on the right path to help you feel comfortable about securing your retirement for the rest of your life. Contact us today to make an appointment.

*Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. This material is intended for informational purposes only and is not intended to be a substitute for specific individualized individualized investment planning advice.

Automation using technology can be a great thing. In manufacturing, packaging and even in our daily lives, automation decreases the time we have to spend completing tasks and often increases both accuracy and uniformity. ATMs save us the time of having to go into the bank to withdraw money. Emails allow us to send messages immediately instead of waiting for the post office to deliver it. And soon, we won’t even have to drive our cars ourselves!

But not every activity or service should be automated. In the past few years, many companies have started offering automated financial advice to clients through systems often referred to as robo-advisors. While the marketing campaigns of these robo-advisor companies let you know about the convenience of automation in your financial life, they fall short at warning you of the potential dangers.

How Robo-Advisors Work

When you open an account with a robo-advisor firm, you’ll be given an electronic assessment that helps identify your financial goals and needs. From this data, the company’s software determines an appropriate asset allocation model. Over the years, the robo-advisor will generally suggest rebalancing based on shifts within the market and your portfolio.

The Robo-Advisor Drawback

Investors who are drawn to a DIY approach to investing, but who don’t want to research various investments themselves, often think the robo-advisor route is ideal. But investing and financial planning are complex tasks that require more than a simple electronic questionnaire to get right. Only a human can figure out all the right questions to ask during a meeting in order to discover your essential goals, ideals and potential financial limitations. Without this person-to-person interaction, you could easily end up in the wrong investments for your needs, risk tolerance and timeline. A human advisor can get to the heart of who you are and how your vision for your future should affect your financial decisions.

Another reason robo-advisors can be dangerous is that no robot is able to handle the intricate decision of whether you should buy, sell or hold an individual position in your portfolio. They would need to consider too many variables, such as whether a stock is at a temporary low due to some recent bad news, whether a purchase could make you run afoul of wash-sale rules, and how a transaction may affect your tax situation.

Most importantly, the robo-advisor lacks the human touch that can help investors get through difficult situations. They aren’t there to hold your hand when the market takes a dive and keep you from panicking and selling your shares when prices are low. They aren’t there to tell you what steps you need to take when preparing for huge life changes such as marriage, divorce, or a new child. Or to help walk you through the overwhelming burden of losing a spouse.

There is no replacement for the understanding and analytical powers of another human being. When you’re making financial plans, let a human advisor from Kramer Wealth Managers help get you on your WealthPath and help to keep you there.