Archive Page 2

A Tax Bomb Awaits You

https://www.podbean.com/media/share/pb-9htmx-dc87cf

In this episode, Jim Kilgore Certified Financial Planning Professional with 401 Advisor talks about the tax bomb waiting for most retirees when they retire.  Jim goes through some steps you can take to avoid this tax bomb. #CFP #taxplanning #financialplanning

What Is Financial Planning Anyway

https://www.podbean.com/media/share/pb-z2y2f-dbc304

Today I am expanding on last week’s podcast by talking about what financial planning is and how it can help you reach your financial goals.  Rather than just walk through a list of what financial planning is, I’d like to dive into some specific examples of ways financial planning saved the client’s money and how the fee paid was way less than the savings gained in the process.

The Foundation of Your Financial Plan

https://www.podbean.com/media/share/pb-s6yps-db0b4d

In today’s episode, Jim Kilgore Certified Financial Planning Professional with 401 Advisor talks about the different kinds of life insurance and how life insurance lays the foundation of your financial plan.  

A Productive Use of Time

A book review by Jim Kilgore CFP® and Bill DeShurko

There are thousands of books on the market aimed at individual investors who are attempting to go it alone and invest on their own.  Whether that be for retirement or some other financial goal, investing is a challenge… because the market does not always go up!

In Why Bad Things Happen To Good Investments, William Hepburn walks the reader through some of the most important concepts to understand regarding investing and managing risk.  He explains why buying a basket of stocks, mutual funds, or ETF’s and holding them forever does not always have the intended result and gives many examples where an active investment strategy can be superior to the buy and hold strategy.

We are in the business of investing and financial planning and we have read hundreds of books on investing over the years.  Mr. Hepburn’s writing style is such that anyone can read this book and understand the concepts he is trying to teach.  The book truly is written to the amateur investor looking to educate themselves on how to do it wisely.  Mr. Hepburn does not use a ton of heavy math and statistics and he is still able to explain things concisely. That said, there is much information in here for the experienced professional and individual alike.

Jim: One of the quotes I really enjoyed from the book was the following “There is an old saying on Wall Street that bulls can make money and bears can make money, but pigs and sheep get slaughtered.  The way to protect yourself from these emotional risks is to have systems and the discipline to stick with them.”

I think my favorite part of the book is how Mr. Hepburn explains to the reader over and over how Wall Street says one thing to the individual investor about how to invest, but does something entirely different with their own money.  If for no other reason, you need to read this book about how Wall Street does not have your best interest in mind, but rather their own. (Bill: especially if you think you are learning anything useful from watching the “business” news channels all day!)

Chapters 16 and 17 on Hedging and stops are invaluable to helping an individual investor and professionals alike limit the downside in their portfolios and is worth the price of the book by itself.

Bill: I’d also add that I first met Mr. Hepburn at an investment conference back in the 1990’s when you were a pariah in the industry if you recommended anything but buy and holding Morningstar ranked 5 star mutual funds. Well before that strategy was debunked, Will was a leader in the field of active portfolio management in the independent investment advisor arena.

As investment professionals, we highly encourage both do it yourself investors and those working with advisors to read this book. We don’t think you’ll be disappointed. Remember:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Mr. DeShurko is the Managing Member of 401 Advisor, LLC an independent registered investment advisor. Jim Kilgore is an Investment Advisor Representative of 401 Advisor, LLC. They are also  registered representatives of Ceros Financial Services, Inc. (Member FINRA/SIPC).  Ceros is not affiliated with 401 Advisor.  The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Past performance does not guarantee future results.  There is no guarantee that any investment or strategy will generate a profit or prevent a loss. 

If Tomorrow Never Comes

https://www.podbean.com/media/share/pb-98g7x-da4766

The topic today is preparing for the what if’s in life, and how you should have a plan to make difficult decisions when every decision will be a difficult one.

401 Advisor Podcast

Bill and I take great pride in providing you with relevant and timely information regarding the market and the economy.  Which is why we are excited to announce we have just released the first episode of our podcast on PodBean, and within the next few weeks we will also be on iTunes and Stitcher.  PodBean is a very popular podcasting platform and they have an app available for download in the App Store for iPhone and so does Android.

The goal of the podcast is to deliver the same relevant and timely content in a different format for people who would rather listen than read.  It also gives you the opportunity to stay connected with us on your daily commute or if you want to listen while you are doing some work around the house. 

The plan is to have one episode per week where we give our insights on the market, economy, retirement savings, taxes, estate planning, or one of the many topics pertaining to financial advice.  Then, a second episode that will be more of a question and answer format, where we will answer your questions you send us through email.  Send your questions to jim@401advisor.com and will answer them as they come in.

I hope you will like and subscribe to the podcast so you can get notified of the newest episode.  I have provided a link below, so you can try it out.

https://www.podbean.com/eu/pb-ffe5b-d97cf1

Bill and I want to thank you for your support, and we hope to hear from you soon.

Jim

Cash Flow Relief through the CARES Act

By Jim Kilgore CFP(R), 2 April 2020

Congress passed the CARES Act to provide emergency assistance and health response for individuals, families and businesses. The CARES Act is providing 2 Trillion dollars in assistance. I am going to cover two ways you can get money for your business as fast as possible through the CARES Act.

Economic Injury Disaster Loans (EIDL)

This is the first line of defense against disasters. These loans have been around for some time, however, these loans have been supercharged to combat the COVID-19 pandemic. Businesses who were substantially affected by the pandemic, who employ less than 500 employees and were in operation on or before January 31, 2020 are eligible to apply. It expands to Sole Proprietors or Independent Contractors.

How do I know if I am “Substantially Affected”?

The CARES act defines substantially affected as business who have experienced, supply chain disruptions, staffing challenges, a decrease in sales or customers or shuttered business.

What is the most amount of money I can ask for?

The maximum loan amount can be up to $2 million.

What can I use the funds for?

You can use the funds for the following:

  1. Payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave
  2. Employee salaries
  3. Mortgage payments
  4. Rent (including rent under a lease agreement)
  5. Utilities
  6. Any other debt obligations that were incurred before the covered period

What are the terms of the loans?

The SBA offers many favorable terms in their EIDLs:

  1. The term is 30 years
    1. Interest Rates are 3.75% for small business and (2.75% for non-profits)
    1. The first month’s payments are deferred a full year from the date of the promissory note
    1. EIDLs less than $200K do not need a personal guarantee

How do I apply?

You can apply for these loans directly through the SBA at www.SBA.gov/disaster. There are no loan fees, guarantee fees, or prepayment fees. Even if you apply and are approved you do not have to take the loan so there is no harm in applying.

Paycheck Protection Program Loan Guarantee

Under the CARES Act Paycheck Protection Loan Guarantee offers one more source. These loans are done through your local lender. This program is offered to small business with fewer than 500 employees and select types of business with fewer than 1500 employees. Self-employed, sole proprietors, freelance, and gig economy workers are also eligible to apply.

How do I know if this program is right for my business?

This program is primarily for those businesses who have experienced a downturn as a result of COVID-19 pandemic and who are still in business and employing people.

What is the most amount of money I can ask for?

The maximum loan amount is $10 million but most business will apply for loans equal to 2.5 times their average monthly payroll costs including healthcare, paid sick leave and other benefits.

What can I use the funds for? You can use the funds for

  1. Payroll Costs excluding amounts for individual with compensation greater than $100,000.
  2. Rent pursuant to a lease executed before February 15th, 2020
  3. Utilities including internet and
  4. Group Health Insurance

Is this loan forgivable without any tax implications to me or my business?

You must maintain the same average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 -June 30, 2019 or January 1, 2020 to February 15, 2020. However, if you do not meet this requirement the amount forgiven will be reduced. There are additional reductions if you decrease employees’ salaries making less than 100,000 by more than 25% as compared to the previous quarter.

What are the terms of loans?

The SBA offers many favorable terms in their PPP loans:

  1. The term is 10 years
  2. Interest Rates go up to 4%
  3. The first month’s payments are deferred a full year from the date of the promissory note.
  4. They do not need a personal guarantee

How do I apply?

You can apply for these loans directly through your local lenders.

Questions?

If you have any questions on either type of loan or any portions of the loan application process please feel free to reach out to me at jim@401advisor.com or call at 937-782-9971.

Mr. Kilgore is a CERTIFIED FINANCIAL PLANNER™  with 401 Advisor, LLC an independent registered investment advisor. He is also a registered representative of Ceros Financial Services, Inc. (Member FINRA/SIPC). Ceros is not affiliated with 401 Advisor. The views expressed are those of Mr. Kilgore and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Successful Retirement Based on Strategy

I have been around the financial advice industry long enough to understand all “financial advisors” are not cut from the same cloth.  There are financial advisors that work for large insurance companies and there are others, like myself, who are independent and offer a wide array of services, not just insurance products.  Now before my brothers and sisters in the insurance industry blast me, understand I have read almost every page of every book written by insurance product industry as well as countless studies by The American College and PhD’s you would all recognize, so I am not ignorant and uninformed about this topic. 

The recent market volatility brings the annuity salespeople out in force, and I know many hard-working people in the industry, and I have a tremendous amount of respect for them.  In fact, I was one of them for a short time when I came into the industry.  But, they use these kinds of volatile times to say, “see, don’t you wish you had an annuity?”

When you come into the industry you are taught how to sell, not how to plan.  They teach you techniques to work on your client’s emotions.  People like security, and volatility is the enemy to those emotions.  Emotions can prompt us to make uninformed decisions based only on the fear of loss. 

I’ve watched this unfold as many of you have due to the recent volatility due to the COVID-19 pandemic.  It is hard to watch an account dwindle by over 30% (based on the S&P 500) in about a month, if that is what happened to you.  Some variable annuities have very high expenses, the investments inside them have separate fees, and they are very complicated products for the average person to understand.  Heck, most advisors that sell them don’t understand them completely. 

It is my belief there needs to be a plan first, and then the implementation stage can begin.  For instance, If there is a gap in life insurance to protect your loved ones, life insurance is purchased to fill that need. 

But when you are investing for retirement and you need to live off that income it is important to make investments that fit your plan for what you want your retirement to look like.  For instance, what lifestyle you want to live and make plans to achieve that.  As a financial planner I take a look at all possible income sources and determine whether those income sources will be enough to cover those lifestyle expenses and if not, I put a plan in place to get my clients to that goal.  Sometimes, that means breaking the news to them, that they need to work a couple of extra years to get there or save more between now and then, but my approach is never to sell a product to them without first understanding all of their financial circumstances as well as any other family circumstances that may be present.  I have heard many “advisors” say, “I already know I am going to pitch an annuity before I even meet the client.” 

Why is a strategy so important? 

When you sit down with a financial planner, who also manages assets, they will look at the total picture.  Annuities have been around for a long time, in fact if you think about it, Social Security is an annuity.  You paid into it, and you get an income you can’t outlive. When social security and other lifetime income streams just don’t cut it, then you must have an investment strategy that fills in the gap.

Annuities are only guaranteed by the issuing company, I’d rather own any (or all) of the dividend aristocrats than an annuity from an AM Best B rated company for SAFETY. The dividend aristocrats are companies that have increased their dividend for 25 or more consecutive years. Getting a raise every year beats a fixed payment any day.

Annuity marketing sells the “payout” rate on immediate annuities, as in “You’ll get an 8% return on investment.” But they don’t tell you 7% of that is return of your own money. Let us calculate the real rate of return before you buy.

The longer you live the more inflation eats into your fixed income sources.  In twenty years, you will often see your buying power go down significantly.  That is why you need a rising income in retirement and that is where an investment strategy built on financial disciple and a strong investment policy is a must.

Dividend growth investing is a great strategy to provide this rising income in retirement.  I am talking about high quality investor friendly companies with a seriously long track record of dividend payments.  Please see the chart 1 below to see the growth of dividends of the S&P 500 from 1976 to 2018.  I believe this strategy coupled with guaranteed life income sources is the superior retirement planning strategy. 

As you can see from the above chart, compared to bonds, a dividend growth investment strategy gives you a rising income over your long-term retirement.  In fact, common convention tells investors to be in bonds during retirement because they are “safer” than equities. 

When investing in stocks for income it’s important to have an accumulation strategy.

Take for example Cisco (Ticker: CSCO).  Cisco is an internet protocol and network infrastructure company.  They have a tremendous amount of cash and a competitive advantage.  In July 2019 they were trading around $57 per share.  I look at this stock as a great value now that it is currently trading at $36.50 per share.  With a current dividend yield of 4.16% and enough cash to pay and or raise their dividend, even during a recession, I rate this high on my list to buy.

As an individual investor, I suggest you look for opportunities like this in the market, or let us do it for you.  For the last couple of years, finding stocks trading at or below their estimated fair value has been hard.  Look at the below chart as it shows a visual on the yield on cost.



The chart above is NOBL, an exchange traded fund that holds Dividend Aristocrats.  Since its inception you can see how it has performed.  All the companies in this fund pay dividends and have a long track record of doing so.  Our investment strategy is that of investing in these kinds of companies so you can see your income in retirement go up, not get nibbled away at over your long retirement by inflation.

Just like buying an apartment building to generate income through rent, these companies generate predictable, consistent income even during tough economic times.  If you owned an apartment and the real estate market tanked, you wouldn’t panic and sell your apartment building would you?  Of course not, as long as you had tenants paying rent every month, you would still get paid.  The same happens when you own high quality dividend paying stocks.

Bill DeShurko, President and Portfolio Manager

James Kilgore, CFP(R)

Ofc: 937.434.1790 Bill@401Advisor.com or Jim@401Advisor.com

More information on 401 Advisor, LLC can be found at 401advisor.com.

This is not a solicitation to invest, but is for information purposes only. Prior to investing an investor should ascertain whether the investment is consistent with their objectives and obtain a copy of the advisor’s ADV Part II which can be found on our web site, or by asking a representative for a copy.

401 Advisor, LLC is a state regulated investment advisory firm, registered under the Investment Advisors Act of 1940. Registration does not involve approval or supervision of the firm or of its practices and policies by the state of Ohio securities commission.

Investing involves risk. *Past performance is not a guarantee of future results.

What You Do, Depends on What you Own

March 23, 2020

Dear Clients and Friends,

After another weekend of COVID-19 news I’m sure we are all on edge as we wait to see what the market has in store for the upcoming week. First and foremost, regardless of my opinion or anyone else’s, no one knows what to expect. This is new. We’ve never seen this before. But what I can say is that I cut my teeth in this business during the 1987 market crash and have been guiding clients since, through the Asian Crisis, junk bond collapse, tech wreck and the 2007 – 2009 Financial Crisis. I’d like to think I have learned a thing or two! Below I’ll outline some of the steps we’ve taken and are prepared to take.

But first, for clients a house keeping note. In keeping with Governor DeWine’s announcement today we will be intermittently working in the office and from home in the coming days. We will not be seeing clients in the office. However, our phones will be forwarded if no one is in the office, and we are well prepared to handle all administrative tasks via email or regular mail. Jim and I will be in constant contact assessing the situation and our investment policies.

It’s All About Strategy

The media would have you believe that the only decision to be made is whether to continue to hold your investments or to sell (and soon I hope, when to buy back in). This is a very simplistic, and in our opinion very harmful for most investors. How one reacts to a market sell off depends on…and no surprise here…on your overall investment strategy. I have preached how important strategy is to the investment process for years, and yet I see very little evidence of it in portfolios we review from outside our practice. A client recently stopped in and asked for advice on his retirement plan. I reviewed what he had and basically said he couldn’t sell it fast enough, even after a very substantial decline. When I looked at the fund’s holdings 8 of its top 10 holdings were in the energy sector, and not the large solid cash flow companies but the smaller debt burdened frackers. I think a couple may end up in bankruptcy. He hesitated as “it did so well last year!” I explained that he did a good job in picking the fund, but failed to develop a strategy, i.e. pick a point to take profits and rotate into something more retirement appropriate. He only implemented 1/2 a strategy!

This is where strategy and timing come into play. We have not sold a majority of our holdings. Why? Because, while no one could predict the COVID-19 breakout, our process identified the energy sector as being financially weak back in February. We sold our energy ETF that we held in some portfolios before the market dropped. We sold financials at the same time. Two of the hardest hit sectors over the last month. We have been focusing what we buy for two years now on high quality high yielding dividend paying stocks. Many companies have increased their dividend payouts for 50 years! These are cash flow rich companies that can weather a downturn. I’m not so anxious to sell quality. We went into this downturn holding quality. Our strategy has been to collect our dividends throughout and and plan ahead for the eventual turn around. We’ll see how we do, but I’m pretty confident in what our accounts will look like in a year from now. We won’t have dividend cutters, we won’t have bankruptcies in our holdings. What we will have will be portfolios full of high quality companies that are back in business as usual mode.

As the crisis has unfolded we have raised a bit of cash in some portfolios. We’ve been short off and on in some, but our big focus is what we do when the market seems to be ready for a rebound. We’ve created two portfolios that we feel can maximize our returns during a recovery without taking on undo risk. We’ll be selling in non-qualified accounts to lock in losses for tax purposes (may as well let the IRS give us a little money back!) and rotating into those “rebound” stocks I mentioned earlier. We’re not just staring at the TV, frozen with indecision as those without an investment strategy are.

What to do Now

Unless you are holding stocks of low quality, high debt companies or junk bonds it’s probably too late to sell now. If you’re not a client feel free to schedule a time to discuss your portfolio, goals and an appropriate strategy for your circumstances.

For clients feel free to call or email with any questions or concerns. We don’t have all the answers but we do have a plan!

And for everybody here is a reason for optimism, an article on possible treatment: https://www.livescience.com/chloroquine-coronavirus-treatment.html

Stay safe.

Bill DeShurko and Jim Kilgore, CFP

Market Volatility

by Bill DeShurko and Jim Kilgore, CFP

“Simply put, our economy is strong, unemployment is at a 50-year low, household income is at a 20-year high, consumer sentiment is near record highs, and corporate earnings continue to impress.” http://www.Zacks.com

Q: So what went wrong?

A: The Coronavirus

The stock market does not like uncertainty, especially uncertainty centers around a question like, “How bad can it get?” More and more experts and market pundits are answering that question with some variation of “Pretty bad?”

While numbers of cases and deaths are really small compared to most annual flu outbreaks, the reaction has been much more radical. Deaths as a percentage of reported infections are relatively high, and with no known cure or vaccine on the horizon many are starting to use the “Pandemic” word. While we have heard of factory closings and quarantines in China, Italy with just 10 deaths reported so far, has quarantined whole towns, cancelled or closed schools, museums, football games etc.

El-Erian, legendary market sage at PIMCO said back at the beginning of February that the coronavirus is going to “paralyze China,” adding that it will “cascade throughout the global economy.” He has been proven right. On Monday he added on CNBC that disruptions from “Shock” events tend to take time to work through the economy. Not the best support when the DOW is dropping 1000 points.

What is Fund Trader Pro’s take?

What we know is that the U S and other countries may soon feel the pinch of a shortage of many products as Chinese production is shut down. Apple and P&G have already warned of an impact to earnings.

Troubling news this week indicates a vaccine is at least months away and could be ineffective.

Quarantines/shutdowns in the U S would be crippling to our economy.

But….

The rebound from pent-up demand could be huge. The caveat to this, which is a big caveat is that the coronavirus could be just the start of an economic snowball. A strong economy can cover many blemishes, the warts will come out if employment is affected.

In other words, we just don’t know. False alarm that blows over or global pandemic? Flip a coin.

Faced with uncertainty we are currently recommending that 401k investors decease their equity exposure. Take 20% to 50% of your holdings and make sure they are already in, or move them to a safe holding. (For our FundTraderPro.com subscribers you will get specific sell and buy recommendations).

At 401 Advisor, LLC we are evaluating and making changes to our holdings as we see necessary. We are very comfortable with holding onto our dividend generating securities, but will continue to look for opportunities to raise cash.

Mr. DeShurko is the Managing Member of 401 Advisor, LLC an independent registered investment advisor. Jim Kilgore is an Investment Advisor Representative of 401 Advisor, LLC. They are also  registered representatives of Ceros Financial Services, Inc. (Member FINRA/SIPC).  Ceros is not affiliated with 401 Advisor.  The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Past performance does not guarantee future results.  There is no guarantee that any investment or strategy will generate a profit or prevent a loss. 


bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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