Successful investing does not begin with the question: “Where should I invest my money today?” An orderly, almost scientific, approach is necessary for successful management of your investment assets. We approach investing as a multistep process. Here we focus on the first step: assessing your financial needs and goals, tolerance for risk, investment time horizon and other constraints that you may have.

Defining goals and needs
Each of our clients is unique. Therefore, to determine a client’s needs, our professionals will meet with you to discuss every aspect of your finances. Ask detailed questions about your income sources and expenses. Evaluate your current investments and retirement resources. Review your family circumstances. Thanks to this delving process, we can help you to pinpoint accurately your short-term and long-term investment goals.
These goals vary widely from individual to individual. For example, one individual may be looking to obtain sufficient capital in a relatively short time in order to acquire a business interest. Another may seek to accumulate assets for a vacation home or to acquire investment real estate. Parents or grandparents may want to build a college tuition fund for their offspring. And everyone is concerned about either saving for retirement or preserving assets during their later years.
Assessment is not just a one-time event, but a continuing process. As changes in economic conditions, tax laws and personal circumstances dictate, we will review and update strategies with you regularly.

The issue of risk
Once your goals are established, there’s a wide range of investment options available from which you can choose. There are several factors that will determine whether a particular investment is right or wrong for you, one of which is the risk associated with that investment.
The assessment process includes probing your tolerance for risk. Are you someone who is at ease with upswings and downswings in the market—or are you apt to spend nights worrying when the market makes even a minor downward turn? Part of the comprehensive analysis conducted by our investment professionals is helping our clients to discover their investment “comfort level.”

The matter of time
Closely associated with the issue of risk is your investment time horizon. By analyzing your short- and long-term goals, we can assist you in choosing the investments that match those goals.
The general rule is simple: If you will need cash in the near term, your portfolio should include sufficient liquid and low-risk investments. Usually, these lower-risk investments (short-term Treasuries, money market funds, for instance) carry a lower return as well.
Many of our clients, however, are investing for the long term. Their portfolio is likely to lean more heavily on a variety of equities, which in the short term may be somewhat volatile but when held for the long term offer a better return.

Other considerations
Because we take the time to understand your complete financial picture, we can fine-tune an investment strategy to your particular circumstances.
Your tax status must be part of the investment equation. Investment return figures usually ignore the damage inflicted by income taxes. After the IRS takes its share from the interest and income earned as well as the capital gains realized, our clients often find that what’s left is less than fully satisfactory. In order to make your investment portfolio truly productive, we will take a look at your income tax bracket and determine to what extent tax-exempt investments may be used to reduce your tax exposure.

The other steps
Our investment management services go far beyond what we have outlined here. For instance, once we have gathered all the necessary information, we will put together an investment “profile.” Using this profile, we will be able to structure a matching asset allocation strategy. Conduct the research that will yield the appropriate securities for the classes of assets that make up your allocation strategy. And, of course, closely monitor your portfolio, making adjustments as time and events dictate.

May we tell you more about our investment management services? We are confident that you will find us a valuable source of guidance and advice.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

When the financial markets are in turmoil, a reshaping of the financial and investment advisory industry isn’t far behind. Some banks, brokers or advisory firms may go out of business; bankers, brokers or advisors may decide to change employers; or unhappy clients simply may conclude that it’s time for a change. There’s no hard data on how much “money is in motion” as a consequence of the current economic downturn, but, speaking anecdotally, it seems significant.
When considering a new financial planner, there are a number of questions that you should ask. Here are a few of the most important:
• How many years of experience do you have and what is your background? The more complicated your situation, the more seasoned your planner should be.
• What does your typical client look like and how do you get new clients? It’s a good idea to have a planner who is experienced with your circumstances. (e.g., self-employed, medical doctor, high-net-worth individual, etc.)
• How do you stay on top of the changes in your field? With changes to regulations and the tax code, it is critical that your advisor take action to stay current and protect your situation.
• How often should I expect to hear from you? You need to know how the advisor will communicate with you and how often.
• How do you get compensated for your work? Understanding whether your advisor gets commissions for sales or is paid an hourly or flat fee for advice can help you identify conflicts of
interest.

If you are considering a change of advisors, and you are not already working with us, please consider putting us on your short list. We will be pleased to meet with you and present our qualifications.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

Ask most families why they save and invest, and the common responses are likely to be to fund a comfortable retirement and to pay for their children’s college expenses.
The task gets increasingly difficult every year. Today, tuition and room and board at a top-notch, four-year private college can be over $50,000 a year.
Many families are exploring the option of opening a Sec. 529 plan as a way to build a fund for college. If you are among them, here are some of the questions that you are likely to want answered.

In a nutshell, what’s a Section 529 plan?
A Section 529 plan (the name comes from the U.S. Internal Revenue Code section that authorizes these plans) is a state-sponsored savings account set up, in most states, through a financial institution. The account is set up for the purpose of saving in order to pay for most “qualified” higher education expenses (tuition, room, board, supplies, etc.) at eligible institutions. Amounts accumulated in a Section 529 plan may be used for expenses at in-state or out-of-state colleges, universities and certain technical schools. The big attraction: There are a number of tax breaks associated with setting up a Section 529 plan.
There is also another kind of Section 529 plan, usually referred to as a “prepaid tuition plan.” These are state-offered plans that are not savings accounts but, rather, contract-based arrangements that lock in in-state tuition costs at current tuition rates. (In some cases amounts in these plans may be transferred to cover expenses at out-of-state institutions.)

Are the tax breaks significant?
Most definitely. No federal tax is paid on the income earned on amounts accumulated in a Section 529 plan. Even better, when withdrawals are made and used for qualified expenses, they won’t be taxed either. Often, there won’t be any tax consequences at the state level either. From an estate planning perspective, there can be tax advantages as well (more on this below).

Are there a lot of restrictions that I need to worry about?
Section 529 rules are fairly liberal. “Eligible” institutions are defined as those that may participate in U.S. Department of Education student aid programs. (There are over 8,000 schools from which to choose.) Section 529 plans may be set up for children, grandchildren or other individuals—even someone unrelated. Generally, there are no age or income limitations, nor any restrictions on the number of plans that may be set up for a beneficiary. There is no prohibition on contributing to an out-of state plan (assuming that the plan permits nonresident participants). Should the beneficiary of the plan not need the funds, or if funds are left over after all expenses have been paid, a new beneficiary can be named. Although the new beneficiary must be a relative, within that category there is a wide range of choices.

How much may I contribute to a Section 529 plan?
Contribution amounts may be relatively small—sometimes as low as three figures. Maximum contributions are set by the state and vary, but generally are at least $100,000 per plan beneficiary. As a measuring stick, maximum contributions may be no more than the amount necessary to pay for five years of undergraduate education and two years of graduate school. This has been interpreted in many states’ plans to permit accumulations in excess of $200,000.

Do I give up control of my money when I put it in a Section 529 plan?
In general, the beneficiary of a Section 529 plan has no automatic right to the money in his or her account. In other words, you maintain control over when withdrawals are taken and for what purpose. Many state plans allow you to withdraw the funds for any reason, whenever you wish. However, for any amount withdrawn that is not used to pay for the beneficiary’s college expenses, a penalty of at least 10% will be owed on earned income and the net capital gain realized in the Section 529 plan assets, in addition to income tax at your marginal income tax rate. However, the penalty will not be assessed if the account is terminated as a result of the beneficiary’s disability, or if funds are withdrawn because the beneficiary has received a scholarship, and the funds are not needed for higher education expenses. And no tax or penalty is paid on the amount that represents a return of contributions.

What are the investment choices offered in a Section 529 plan?
There is a variety of investment options from which to choose, including growth and income funds and more conservative investments such as money market funds. Many plans offer an “age-based fund,” which includes investments that have been targeted to a child’s time horizon for entering college. In choosing a plan, the number of investment choices and fees associated with the plan should be considered. In most plans investment choices may be changed once every 12 months, sooner if you are changing the beneficiary.

Are there estate planning implications to contributing to a Section 529 plan?
Amounts contributed to a Section 529 plan are no longer considered to be your property and, as a result, are not subject to federal estate tax at your death—even though you retain control over the plan, the investments chosen, and how and when funds are distributed. The contributions are considered gifts for federal gift tax purposes and are eligible for the annual gift tax exclusion (in 2014, $14,000). A special federal gift-tax provision allows you to use five years’ worth of annual exclusions, or $70,000 in 2014, at one time. Three points to consider: Taking maximum advantage of this special exclusion precludes additional annual exclusion gifts to the beneficiary for the year of the contribution and the next four years. And should you die anytime during that five-year period, a prorated amount will come back into your estate.

How does a Section 529 plan affect chances to qualify for federal aid?
According to guidance provided by the U.S. Department of Education, the individual who sets up and contributes to a Section 529 plan is considered the owner of the plan for purposes of determining eligibility for federal financial aid. Thus, only 5.6% of the value of the account would be counted in figuring a parent’s expected contribution toward costs for each academic year, much better than the 35% that would be assessed if the plan were to be considered as owned by the student or were in a custodial account. However, when a withdrawal is made, it is considered income to the student and, therefore, could affect eligibility for aid in a subsequent year.
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As you can see, a Section 529 plan offers significant benefits for college savers, but there’s a great deal to learn as well. Do you have additional questions about 529 plans? Or do you want to find out more? If so, let us know. We would be glad to be of assistance.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

Investors who are wary of increasing the growth portion of their portfolio often decide to augment their fixed-income investments—cash equivalents such as Treasury bills or CDs, for example. Some investors still may consider stocks, but they are looking for those that offer healthy dividends, rather than putting the potential for growth at the top of their wish list. Bonds are likely to be under consideration as well.

Preferred stock: a hybrid
Some investors are turning to preferred stock as a way to gain a measure of safety along with a satisfactory income stream.
Preferred stock represents a mix of regular common stock and a bond. Similar to common stock, a share represents partial ownership in a company and pays dividends. The company books list the shares as equity on their balance sheet.
But preferred stock bears many characteristics of a bond: It has a set maturity (often 30 to 40 years) and, at that maturity, pays the investor par value. Dividends, as is the case with bond coupons, can’t be tampered with when a company’s earnings fall significantly. Ownership of preferred shares generally does not entitle a shareholder to vote his or her shares, a key characteristic of common stock. But, on the plus side, preferred stock has priority over common stock in the event of bankruptcy and in the repayment of dividends (hence, the “preferred” in its name).

Why preferred stock?
First, a bit of history: Preferred stock surged in popularity in the 1990s. Prior to 1993 it was more favored by corporate investors because much of the income earned was deductible. (Individual investors were not allowed the deduction.) Beginning in 1993, new preferreds were issued that were fully taxable for all shareholders—offering higher yields than their
pre-1993 predecessors.
Here’s why preferred stock may be more attractive than bonds to investors seeking fixed-income investments: Dividends are more frequent—quarterly, rather than the more usual twice-a-year payment offered with bond coupons. Because it trades on the stock market, information about preferred stock may be more readily accessible. And cost (generally, $25 a share) is less than the $1,000 price of a new corporate bond, allowing beginners to take a small step, rather than a plunge, into the world of preferred stock.

The other side of the coin
That’s all good news. But investors must weigh some significant downsides to investing in preferred stock.
As is the case with any bond, preferreds carry substantial interest-rate risk. When interest rates rise, their value will drop. What’s more, an investor generally can’t expect to share in the “good times”—when a company is successful, common stockholders will see the value of their shares rise while preferred shareholders are unlikely to enjoy any additional investment rewards.
From a tax perspective, preferred shares may not make sense for top-bracket taxpayers. Because they don’t have the same potential for long-term capital gain, the investor generally is left with taxable dividend income (at a tax rate of 15% currently) from his or her investment. Of course, this obstacle may be overcome for a time, when preferreds are held in a tax-deferred retirement account. (It’s also important to note that not all dividend income from preferred shares qualifies for the low rate.)
In an era of collapsing corporate giants, investors cannot ignore the possibility of bankruptcy. A preferred stockholder may see dividends suspended. And because they have slightly longer maturities, preferred shares generally are subordinate to corporate bond issues. In other words, if a company runs into bad times, owners of preferred stock are ahead of common stockholders in the line, but stand behind bondholders.

Evaluating preferred stock
Investors taking a serious look at preferred stock need to ask a few questions. For example:
• Is the preferred issue cumulative? With cumulative preferred stock, generally, dividends will accrue even if they are not actually paid. When a company hits a temporary setback but later recovers, the preferred stockholder is entitled to receive all the dividend payments missed.
• What are the call provisions? Most preferred stock has provisions that allow companies to redeem preferred shares at par after a specific date. A company is most likely to call preferred stock when interest rates have dropped. Therefore, investors should look for a high yield to call, not just an attractive current yield.
• Are the shares “participating” or “nonparticipating?” Participating preferred shares offer an added bonus. Shareholders may receive additional dividends based upon a predetermined formula using the company’s profits as a measure (referred to as a “participation dividend”). Participating preferred shares are the exception rather than the rule.
• Are the shares convertible? With convertible preferred stock, share value is closely tied to the price of the company’s common stock. Convertible preferreds may be exchanged for common stock at a set price at some specified future date.

Doing the research
Finally, as with any investment, it’s important to do the research.
Before adding a company’s preferred stock to one’s portfolio, an investor should understand what the company does and how it generates its income. Just as important as an analysis of the company, however, is the risk analysis—how likely is it that the company will be able to pay the required dividends?
One measure of a company’s ability to handle its debt is its EBITDA coverage ratio. EBITDA is earnings before interest, taxes, depreciation and amortization. The ratio is EBITDA divided by interest expense plus preferred dividends. The higher the ratio, the more attractive the preferred stock.
For quick reference, an investor may gain some insight from a look at how a company’s preferred stock is rated by S&P or Moody’s. As a general rule of thumb, if the preferred stock’s rating is below a “B,” it is considered “junk.” Anything above is considered investment grade.

To learn more
If you are interested in finding out more, one of our investment specialists will be glad to explain this investment in more detail and help you decide whether, in your particular circumstances, preferred stock deserves a place in your portfolio.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.