Category Archives: Tax & Estate Planning

The Investment Policy Statement – Roadmap to your Portfolio

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By adding just a little structure to your approach, you can really supercharge your investment results and feel more empowered so you can relax during bumpy markets. The market actually behaves in a very predictable and consistent way – it is the response of investors to various conditions that is unpredictable and interferes with goals. The Investment Policy Statement is a critical tool to help investors manage themselves and their responses, which is the most important component of a successful investment plan. Of the people who may fall short of their goals, for most it is not because their savings rate fell short, but because they received bad advice from an inexperienced advisor and sold out of the stock market during the drops of 2000-2001 and/or 2008-2009. Many people refer to these bear markets as the crashes following the dot-com and real estate “bubbles,” but they actually occurred during recessionary periods which were signalled by several economic indicators. So, by having a well-developed Investment Policy Statement and the advice of an expert Registered Investment Advisor to navigate changes in the economy, your roadmap to success will be rock-solid. Let’s look at the components I include in the Pawleys Investment Policy Statement:

Purpose: This section outlines the reason we use this document, and contains wording that is designed to generate open conversation. The main purpose of the document is to keep us, as a team, focused on longer term investment objectives.

Investor Profile: The Investment Policy Statement is used in concert with the Investment Advisory Agreement, which outlines the roles and responsibilities of each party. The Investor Profile section outlines the financial situation of the client, timeframe for investment goals, risk tolerance, types of accounts included, and other important information.

General Investment Philosophy and Objectives and Risk: Portfolios can be designed with varying levels of conservatism or aggressiveness, and this section details the agreed upon approach.

Return Requirements, Time Horizon and Asset Allocation: The return requirements will be based upon historical returns of model portfolios with the same asset class mix of the designed portfolio. This section also outlines the timeframes for stated financial goals. Specific percentages for the asset class mix are outlined in the section.

Portfolio Performance: This section specifies exactly which benchmarks will be used to evaluate portfolio performance.

Investment Policy Review: At a minimum, I recommend annual portfolios reviews to assess quality of investments, fit within the portfolio, and the overall performance and risk of the portfolio. This is also a good time to discuss any need to change course. Major unexpected life events through the year may cause the need to modify the Investment Policy Statement as well.

We sign this document and use it as our roadmap. Again, it is an important tool for me to communicate with clients, and it also helps them feel more empowered as investors so they can relax. The markets are very consistent in their behavior, and when investors learn to temper their reactions and behave in a consistent fashion as well, they are well-positioned to surpass their stated goals. 🙂

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

Savers Tax Credit – IRS Form 8880

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During 2006, there was a tiny tax code update as a part of the Pension Protection Act that many people are unaware of, and I think it is helpful to get younger people excited about saving for retirement. Starting early is a critical factor when it comes to saving for retirement, and I am passionate about helping younger people make great financial decisions. Please share with any children, grandchildren, friends etc who might benefit. Here is a quick summary:
•You must be at least 18, not enrolled as a full-time student at any time during the year, and not claimed as a dependent on another person’s tax return
•Eligible Plans – IRA’s, Roth IRA’s, 401(k)’s, 403(b)’s, and 457 plans.
•Adjusted Gross Income Limitations – must fall below income limits for 2012 of $28,750, head of household filers of $43,125 and joint filers of $57,500.

The credit can be as much as $1,000 for single filers and $2,000 for joint filers, and is in addition to any deduction that may be available. The IRS Form 8880 can be found here: http://www.irs.gov/pub/irs-pdf/f8880.pdf. As always, consult a tax professional to see how this may applies as every one’s situation is unique and different.

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

Tax Credit for New Pension Plans – IRS Form 8881

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Small business owners who establish pension plans may be eligible to receive an IRS tax credit to offset expenses incurred in establishing the plan.  Pawleys Investment Advisors does not provide tax or legal advice, but over the years I have found that most business clients are unaware of this credit.  Eligible plans include SEP IRA’s, SIMPLE IRA’s and qualified plans including 401(k) plans, profit sharing plans, money-purchase plans and defined benefit plans.  The annual credit is 50% of the first $1,000 in expenses, so it is limited to $500, and is available for 3 years.  Qualified expenses include those incurred in establishing the plan, administrative fees, and costs to provide employee education.  Employers may choose to claim the credit or use it as a deductible business expense. This credit is in addition to any tax deduction you may receive for making company contributions for your employees.  The credit applies to companies with no more than 100 employees who have received at least $5,000 in compensation.  Companies that qualify that later grow beyond 100 employees who receive at least $5,000 in compensation may be grandfathered, depending on the current tax code.  The established plan must cover at least one non-highly compensated employee as defined by the IRS.  Additionally, control-group aggregation rules apply, so be sure to consult with your tax and legal advisors or Third Party Administrator.  If you established a plan, your advisor should have provided you with information regarding Form 8881 to discuss with your tax professional.  If you have not yet established a retirement plan for your business, please call Pawleys Investment Advisors.  You will be surprised about the relative ease and low cost of setting up a new plan.  It will help you better prepare for retirement and, if you have employees, help improve their satisfaction and better prepare them for retirement.

Click to access f8881.pdf

© 2012 Pawleys Investment Advisors, LLC.  All rights reserved.