Financial Advisory Briefs March, 2008 Presented by Legend Financial Advisors, Inc.^®
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“BRIEFS” identifies a number of current financial planning and investment market issues. For more information, you are invited to contact our Director of Marketing Christopher J. Kail at (412) 635-9210, Extension 230, to schedule a conference call with the advisor listed at the bottom of each brief. You may also reach us via E-mail at legend@legend-financial.com. For more information on Legend Financial Advisors, Inc.’s^® (Legend’s) award-winning financial advisory team, please view their Professional Biographies by going to http://www.legend-financial.com/f_biographies.htm.
TABLE OF CONTENTS 1. Following The Rules Can Save On Income Taxes 2. College Savings Plans Can Overwhelm Investors 3. Non-Traditional Investments Heat Up In a Slow Economy 4. “One Owners” Win Big With “Solo 401(k)” 5. Considerations when Buying A Mutual Fund 6. Avoid Second-Marriage Money Mistakes 7. Give Those Antiques Away Now 8. Doctor, Protect Thyself Financially 9. The Chain Reaction Of A Falling Dollar
FOLLOWING THE RULES CAN SAVE ON INCOME TAXES When it comes to buying or selling a home, keeping low income tax bills should be a high priority especially now that home prices are falling. Knowing the income tax rules can help homeowners take advantage of the tax breaks available when deciding to relocate. Selling a home too soon can raise income taxes. If a homeowner resides in their home for over two years, the Federal Income Tax Law allows savings of $250,000 to $500,000 in capital gains taxes. If a homeowner is forced to pay taxes on profits from the sale, increasing a home tax’s basis and by not depreciating it for business purposes can decrease the amount paid on capital gains. Selling a home due to hardship, such as divorce or medical causes, can also provide income tax breaks. These “hardship sales” qualify a homeowner for reduced capital gains exclusion. For more information, contact Legend’s Diane Pearson, CFP™, PPC™, CDFA™ at (412) 635-9210, ext. 120. Briefs - 01/08 - 1
COLLEGE SAVINGS PLANS CAN OVERWHELM INVESTORS With rapidly increasing tuition costs, it is wise for parents to begin saving for their child’s education now. Utilizing a 529-college savings plan should be a serious consideration. There are many issues to consider when considering the options of a 529 plan: selecting a suitable plan and investment manager, choosing how to coordinate assets, staying abreast of developments, and viewing college savings from an all-encompassing financial standpoint. There are many options to all of these issues, and it is easy to get overwhelmed amidst the numerous amounts of information. To maximize benefits from a college funding strategy, professional guidance at least from an educational standpoint if not from an ongoing guidance standpoint, is paramount to success. For more information, contact Legend’s Jim Holtzman, CFP™, CPA at (412) 635-9210, ext. 119. Briefs - 01/08 - 2
NON-TRADITIONAL INVESTMENTS HEAT UP IN A SLOW ECONOMY Investors may want to consider investment alternatives to stocks and bonds, which suffer in a time of following prices for equities and many fixed income securities. Diversifying a portfolio with investments such as commodities, currencies, structured notes, hedge funds and/or managed futures can provide benefits and cushion the blow of a suffering market. Even money markets may make sense despite their low yields. These types of investments offer low if any correlation to the stock market and can often result in positive returns rather than large losses. For more information, contact Legend’sLou Stanasolovich, CFP™ at (412) 635-9210, ext. 221. Briefs - 01/08 - 3
“ONE OWNERS” WIN BIG WITH SOLO 401(k) Business owners now have a new investment vehicle available that will give them the benefits of being both the owner and sole employee of their business. Owner-only 401(k) plans (only available since 2002), also known as “Solo 401(k)”, can have the best features of a 401(k) plan and a profit-sharing plan. (Technically, 401(k) plans are a form of profit-sharing plans). It allows the owner to act as the owner in some instances and as an employee in others depending on how advantageous the benefits. Up to $46,000 of pre-taxed money can be saved as a result of this vehicle in 2008. For more information, contact Legend’s Diane Pearson, CFP™, PPC™, CDFA™ at (412) 635-9210, ext. 120. Briefs - 01/08 - 4
CONSIDERATIONS WHEN BUYING A MUTUAL FUND Investing in long-term mutual funds can be a tedious process. Patience and thorough research to find a suitable fund can often save investors from buying mutual funds that don’t fit their investment goals or portfolio. These errors can be costly, but there are warning signs that it’s time to exit a fund. If a fund’s top portfolio manager is accused of securities violations such as late trading or illegal market timing, one should usually sell the fund. If the fund underperforms for several consecutive years versus similarly managed funds or conversely, if there is an extremely high turnover or an outrageous excess of a fund’s benchmark, it may indicate more risk than originally desired. If a fund becomes very popular or too large, or the portfolio manager leaves, the investment methodology of the fund may need to be adjusted to accommodate new investors, consequently, shifting from the focus that was originally the reason for choosing the fund. Finally, if the goals of the investors and the mutual fund change, it is always a good idea to reassess the investment. For more information, contact Legend’s Lou Stanasolovich, CFP™ at (412) 635-9210, ext. 221. Briefs - 01/08 – 5
AVOID SECOND-MARRIAGE MONEY MISTAKES While remarriage may bring happiness, it almost always creates sparks around financial issues such as debt, investments, home ownership and taxes. If heading into a second marriage, it is important to seal it with a decidedly unromantic document, called a prenuptial agreement. A prenuptial agreement helps to resolve a host of financial questions which could eliminate future disputes and ultimately strengthen one’s union. A prenuptial agreement is also a good idea for one’s children, in effect helping guard assets which will eventually be theirs from a new spouse in the event of divorce. For more information, contact Legend’s^® Diane Pearson, CFP™, PPC™, CDFA™ at (412) 635-9210, ext. 120. Briefs - 01/08 - 6
GIVE THOSE ANTIQUES AWAY NOW The IRS’s gift giving rules state that a person is able to give annual tax-free gifts valued up to $12,000 to as many people as he or she would like. This is an excellent way to share one’s wealth without being penalized for taxes. This is also advantageous for items such as antique furniture, jewelry and artwork because if they are left in a person’s estate they may have to be sold at fire sale prices to pay the estate taxes owed on them. However, before giving a valuable item away it is necessary to have it appraised to avoid any questions concerning its worth. For more information, contact Legend’s^® Jim Holtzman, CFP™, CPA at (412) 635-9210, ext. 119. Briefs - 01/08 - 7
DOCTOR, PROTECT THYSELF FINANCIALLY Medical doctors often, too busy with the medical issues of patients, often fail to properly care for themselves financially. Areas that need consideration include making one’s assets less vulnerable from an asset protection standpoint, avoid delaying saving in their retirement plans, and choosing inappropriate or not well thought investment strategies, to name a few. Hiring a financial advisor that provides high quality advice - not a product pusher, is considered preventive medicine that can save long term financial pain. Find out key qualities to obtain an advisor who can enhance a medical doctor’s long term financial picture. To learn more about protecting the assets of doctors, contact Legend’s^® Jim Holtzman, CFP™, CPA at (412) 635-9210, ext. 119. Briefs - 01/08 – 8
THE CHAIN REACTION OF A FALLING DOLLAR A falling dollar is not automatically a negative occurrence. However, the severity and the length of the decline could bring negative repercussions upon the U.S. economy. A currency decline causes foreign investors to stop buying U.S. financial assets including treasury securities, causing interest rates to rise and stock prices to plummet. The declining dollar also has a negative affect on foreign economies. As the Euro, Yen and Pound increase, making those countries’ exports more costly, their industries slow down and stagnate. However, U.S. investors today have a number of investment vehicles available today to take advantage of the falling dollar. Among these alternatives are currency funds, foreign investment and commodities including precious metals such as gold. For more information on a dollar crash, contact Legend’s^® Lou Stanasolovich, CFP™ at (412) 635-9210, ext. 221. Briefs - 01/08 – 9