• Jordan Speith, Dustin Johnson And State Taxes


    The official and unofficial golf season kicked off Thursday with the Masters. The PGA and all other tours convene for four special days in Augusta, Georgia. But did you know that most of the PGA Tour stars tend to make their full-time homes in Florida, Texas, and Nevada?

    And it is not just because they like fresh squeezed orange juice, rodeos, and blackjack tables.  They make their homes in such states because of something those locations lack:  State Income Taxes.

    Further, many of the American Tour pros live in places like the Bahamas, Cayman Islands and the British Virgin Islands where they can escape nearly all income taxes, federal and state.

    The financial benefits can be significant.  If you are interested in exploring this further, retirement living has a offers a helpful interactive chart where you can click a state and get more information about its tax structure.

    Hit them straight!

  • The Two Big Mistakes







    Here is one of my all time favorite financial charts








    So, historically, if you had a 20-year time horizon, there was 0 risk investing in equities (as represented by the s&p 500 index)

    When this chart is shared with retirement investors, many respond to this data in 2 ways:

    1) Who in the world has a 20-year time horizon?

    2) This is the past, how can we be sure it will be the same in the future?

    To the first point, I would say the majority of investors have at least a 20-year time horizon, at least actuarially. Certainly, a Millennial or Gen Xer does.  A 58-year-old in average health does. Even a married 65-year-old couple has a joint time horizon of 20 years.

    To the second point, I would say that the past does not guarantee the future but generally speaking, in material/economic terms, things have always improved over time. The historical price of the S&P, in 20 years increments, has been as follows:

    3/1957:  44

    3/1977:   98

    3/1997:   757

    3/2017:  2362

    So to think the next 20 years will be worse than any in history is just not rational.

    So the big mistakes are thinking our investing time horizon is shorter than it really is and thinking the next 20 years will be economically worse than any in history. These 2 big mistakes lead to inappropriate investments decisions and behaviors that worsen retirement outcomes.

  • Tax Changes for 2017

    Each year a group called “Brokers Service Marketing” sends me a very handy two page summary of tax changes.  Some of the notable, albeit small changes in 2017 include:

    • Tax brackets, as usual, have been adjusted for inflation
    • Federal estate tax exemption increased by 40k to $5.49 million per spouses. (Although Trump has said he wants to scrap it altogether)
    • The standard dedication has increased slightly

    The chart can be found here

  • Your 401k Plan’s Emotional Bank Account

    Stephen Covey was an American author, educator, businessman and public speaker who passed away in 2012. His most favorite book, the seven habits of highly effective people, sold 25 million copies worldwide. In the book, he creates a powerful metaphor called the “emotional bank account.”

    We all know how our regular bank account works; when we make deposits, the balance goes up, when we withdraw it goes down. Covey’s metaphoric bank account works the same way, but it is for “emotional trust” with other people, not money.  Covey identifies ways to make deposits to this “emotional trust” account; keeping commitments, clarifying expectations, apologizing when we make mistakes and more. And if we make such deposits, this account will have a high balance, and it becomes easier when you make errors in the relationship (i.e., withdraw from the account) because you can draw down on the former reserve you built up in the relationship.

    This idea is a great and clever metaphor to keep in mind with business and personal relationships of all types including the relationship between the 401k plan sponsor and 401k plan participant.

    If you are an employer who sponsors a 401k or 403b retirement plan here are ways you can make DEPOSITS  into your “emotional trust account” with your program’s participants:

    • Offer good investment choices with reasonable expense ratios
    • Communicate consistently and clearly with both written and verbal communications regarding investment changes, fee disclosures or anything else.
    • Offer a matching contribution or profit sharing if possible

    And here are ways to make WITHDRAWALS from your 401k’s emotional bank account:

    • Offer underperforming investments with above-average expense ratios
    • Rarely communicate anything about the plan
    • Do not even consider matching or profit-sharing

    Each project and situation are different, so there are no absolutes here but in the end, if you can make more deposits than withdrawals to your 401k “Emotional Bank Account” account, the plan will be successful, and retirement outcomes will improve for everyone!

  • 39 Percent Of 401k Participants Don’t Save Enough To Get Full Match

    While there is more than enough 401k advice out there, the most important factors for successful participant outcomes remain:

    1) Defer enough (recommended amount nationally is 10%)

    2) Invest in the right allocation (mostly equity when you are younger)

    3) Keep fees reasonable (No more than 1% year)

    1 and 2 are the most important, yet research indicates participants still don’t save enough.  Incredibly; many do not even save enough to receive the full employer match!   A study by Financial Engines, written about in the NY times blog reveals:

    Of the two million 401k participants evaluated, 39 percent were not saving enough to receive their employer’s full matching contribution (or they weren’t saving at least 5 percent of salary in companies with no match), up from 33 percent in 2008.  Younger workers are even more likely to give up the free cash: 47 percent of participants under age 40 did not save enough to receive the full match, compared with 53 percent of workers under the age of 30. 

    As a plan sponsor (employer) the best way to encourage participation is through clear and consistent communication. Keep letting the participants know that the program is competitive and worth making the investment. Perhaps they don’t invest enough because a lack of trust and confidence in the plan itself which may come from a lack of transparency? So be upfront about the fees and expenses while reminding them of the benefits and advantages – especially if there is a match because 39% of participants are leaving free money on the table.


  • My Investor Who Was Concerned About The Election

    The e-mail came in Friday before the election. My investor was very concerned and wanted to liquidate most of his equities and “sit on the sidelines for a few weeks.”  And when the “dust settles” reinvest accordingly.  I’m assuming this investor had a hunch Trump would win, and thought that it would cause his portfolio to crash.  A part of me understood.  In fact when I attended the Pershing Insite conference in Orlando this year, one of the very informed economist speakers told us that a Hillary win was already priced in and Trump would have an adverse effect.  But I still knew it was a bad move because economics and politics are too complex to predict short-term outcomes, no less correlation between the two.  But the investor gave the orders, and I had to oblige and sell.

    So as we know, he was right in Trump winning but  here’s what happened to the markets as represented by the Dow:

    Election morning we are at 18,288, five days later we hit an all time high of 18921.  So, as measured by the Dow, he misses out on close to half of the entire year’s growth, reinforcing my understanding that  we are better off creating and monitoring a financial plan rather than trying to predict short-term market moves.

  • Hillary Clinton, Donald Trump And Your 401k

    With less than a week to go before the election, many 401k plan sponsors may wonder how the outcome may affect their plan. I have seen all kinds of opinions on this, such as the “Presidential Election Cycle Theory” which holds that, regardless of who wins, the equity markets are weakest in the year following election year. There are some studies that “prove” that the markets do better under democrats than republicans. Etc

    Some of these studies do have some merit, in proving some kind of election/market correlation. But correlation does not imply causation (Both forest fires and ice cream sales are up in the summer but forest fires don’t cause more ice cream sales). Also, if there is some causation it can change at any time  as the markets and the world changes (During Obama’s second term, the market completely failed to follow the “Presidential Election Cycles Theory”)

    It’s too complex, risky and expensive to try to adjust 401k investments based on an election. Instead ignore the election when setting up and adjusting your long-term plan for your 401k.

  • Pro- Finder Contest Story

    My business is providing objective and transparent financial and administrative advice to small/ mid-size companies that sponsor 401k plans for their employees.  This venture has been very rewarding as I  impact people’s lives in a positive way. As we move from an era of financial dependence on corporate benefits and government entitlements in retirement to a time of financial independence, where we need to figure it all out ourselves, the  401k will play an increasingly important role for many American workers.

    And frankly, many of the 401k plan providers and products have fallen short: fees are often too high, communication infrequent and many programs are disorganized and even out of compliance. Being able to provide a hands service including administrative, recordkeeping and financial advice has allowed my to improve the quality of a companies 401k plan, improving the owners and participants retirement picture, often reducing costs in the process.

    Linkedin Pro Finder can potentially be a tool that could connect those looking for objective and transparent 401k advice to my firm,  where a conversation can begin and potentially result in improved retirement outcomes.

  • Beware Of Yield Fixation







    I listen to the radio commercial in my car which goes something like this: “For years David Lerner has been providing steady income to our investors…”  – that’s when I change the channel.

    I check my voice mail in the office “Hi, this is so and so from so and so investment management, and I want to speak with you about showing your clients our core income strategy…” – that’s when I hit the delete button.

    How many financial marketers do you hear that start with an offer of income?

    It sounds appealing, especially to those of us in or nearing retirement, but I don’t buy it.  In fact, I think it can be harmful to investors.  A fixation on income often leads to investor mistakes because “safe” income investments provide little income (today more than ever).  So if you stay with safe “income investments” your purchasing power insidiously erodes to inflation.

    Often advisers/investors will then “reach” for higher yield and in the process swing too far the other way, assuming too much risk.  Perhaps with “high yield” bonds (i.e., junk) And the higher the yield, the riskier the investment is.  Or maybe they reach for more yield with preferred securities or high dividend paying stocks.

    Look at what investors experienced in the iShares Dow Jones Select Dividend Index Fund (DVY).  At the end of 2007, 46% of the portfolio was in banks and other financials.  During 2008, the fund’s value fell 33%. (Today the fund has about 15% in financials.)  Also, dividend and income-producing investments held in taxable accounts can have payouts eaten up by tax bills.

    Forget income.  Focus instead on asset allocation and a total return target that is consistent with your financial objectives and long-term plan.  The right amount of revenue will come as a by-product.

  • Living To 100 And Your 401K

    If you are a married couple, age 65, your joint life expectancy is around 93 (50/50 chance one of the two will live to 93).  If you are an educated, white collar worker, it’s probably higher. One of you may make it to 100, so you should plan for needing about 3 decades of retirement income. And due to inflation your real living costs will rise considerable over 3 decades, not to mention un-reimbursed healthcare expenses. Further there will be less dependence on government entitlements and corporate benefits.

    For example, in 1985, out of the 100 largest companies in the U.S. 89% offered their employees a guaranteed pension in retirement, by 2002 it is only 50% and by 2010 only 16%







    For better or worse the 401-k will be the most practical way to fund for this kind of retirement. Almost anyone can have a 401k. If you work for a large or mid size company you probably have one – (if not, give me a call) and if you’re lucky a match from your employer as well.  Small companies can easily set one up and even if you are self employed you can start a Single K.

    Finally, don’t forget about the ROTH feature, where you can contribute after tax dollars but the income that comes out – maybe for 30 years or more  – is all tax free!