Tuesday, November 30, 2010

Cities Where Americans Are Getting Richer

During the financial crisis, have you wondered which American cities are actually getting richer while others struggle? It's hard to believe, but even in the worst of recessions, there are pockets of strength throughout the country. While the cities are strong for different reasons - steady employers, location, government funding - each one is an interesting case in its own right.

You can check out Forbes' list here, though be aware, some of the cities may surprise you!

Monday, November 22, 2010

Smart Holiday Money Moves

The Wall Street Journal had an article over the weekend discussing seven smart money moves to make during the holidays. While they are all worthy nuggets of advice, one of the most interesting to me was number four - "Set up funds for the children (or grandchildren). While this may have limited applicability to Gen Y, it's important nonetheless, especially if you have been a recipient of gifts from a family member. Substantial financial gifts are common during Christmas time, especially as part of an estate planning strategy. This year, tax law dictates that you are able to give up to $13,000 as a gift, tax-free!

While I recommend giving this money if you are able to, I would also like to mention what to do with it if you receive such a gift for the holidays this year. First, max out your Roth IRA contribution for the year and consider investing the majority (75% or more) in index funds should you own them in your Roth. Next, use the remaining 25% for extra liquidity by holding the cash in a savings account or money market with checkwriting capabilities. Lastly, consider giving back to your community, a favorite charity or purchasing something you enjoy. By both saving and investing this money wisely, you will see that your family's financial fortunes in the future are just as good (or better!) as they were when your relative gave you the gift.

Monday, November 15, 2010

The Importance of Year End Tax Planning

The year 2010 will go down as one of the most important years for tax planning in U.S. history. As the Bush tax cuts from 2003 get ready to expire if Congress does not act to extend them, investors will be faced with an even larger tax bill going forward if they choose to delay realizing some of their gains into next year based on some of the higher rates we'll see. Most importantly for Gen Y, capital gains and dividends taxes are set to rise, in addition to marginal income tax rates.

Capital gains taxes are especially important as a focus area because this is the perfect time to rebalance your portfolio and plug some of the gains into losing positions to get back up to your desired allocation. Since successful positions will naturally rise to a greater proportion of your overall asset allocation, taking profits in those positions will enable you to tweak your allocation to remain at your desired levels.

With capital gains tax rates at 0-15% this year based on the tax bracket you are in, you will also be able to better offset this year's smaller tax bill with potential losses that will go towards reducing the overall amount you have to pay. Keep all of this in mind as you go about preparing to get your financial situation in order as the end of the year approaches.

Thursday, November 11, 2010

Extending the Bush Tax Cuts

Coming off a mid-term election which saw his Democratic majority in the House of Representatives disappear, President Barack Obama has indicated he is willing to compromise with Republicans in extending President Bush's tax cut package from 2003 for all Americans. Initially, Obama was hesitant in supporting an extension of the tax cuts for the wealthiest Americans, but it appears that the will of the people made clear during the mid-term elections will win out: Americans want less spending and lower taxes across the board.

This news is important on two fronts. First, if the tax cut extension is indeed passed, it will help spur economic growth like Bush's tax cut packages did in 2001 and 2003. In 2001, the tax cuts helped fuel growth coming off a recession and in 2003, the cuts helped perk up the labor market. By extending the tax cuts across the board, there will be more wealth and capital flowing through all areas of the economy. It's easy to vilify the "rich", but many of the people who make up this class are small business owners who employ millions of workers. Since they are paying a majority of the taxes in the U.S., by penalizing them in a recession in the form of higher taxes, we're also hurting the labor market in the process.

Secondly, from an investment standpoint, lower taxes will spur investment, particularly if the capital gains and dividends tax rates stay at their Bush-era low rates. These rates will create extra incentive to investors to provide much-needed capital to businesses which in turn will also help economic growth. Low taxes are crucial to support both economic activity and to enable individuals to save more of the wealth they've earned.

Wednesday, November 10, 2010

A Turnaround In the Labor Market?

Weekly jobless claims fell to a 4 month low indicating that the labor market may be picking up a bit. One of the most interesting parts of the AP report was the following quote and comment:

"The pace of hiring has picked up in the past few months," said Mark Vitner, an economist at Wells Fargo. If the drop in claims is sustained, he said, net job gains could rise from this year's average of 90,000 a month to 140,000 next year. Still, that's barely enough to keep up with population growth. The economy needs to create at least 300,000 net jobs a month to make a dent in the unemployment rate, now at 9.6 percent."

While the job market may be seeing a temporary boost for the time being, a full recovery is likely some time away. After all, 300,000 net jobs a month are not likely to be appear out of thin air.

Monday, November 8, 2010

What's Twitter Worth?

The value of many private social media companies like Twitter, facebook, Zynga and the like is oft-debated. Smart Money recently had an article analyzing the potential values of these companies should they be brought to public market.

This is all very interesting because it shows the type of power and leverage that Gen Y is having on business. After all, the lofty valuations that these companies are receiving are due in large part to their extremely large user base - primarily members of Gen Y. While much of their value relies heavily on the network effect of adding new users and generating increasing amounts of revenue via ads and other means, the amount of people using their product indicates that the potential value that the market places on each company may be more believable than the values placed on Internet companies during the tech boom - only time will tell!

Monday, November 1, 2010

Tuning Out the Noise

While looking through the news this morning, I noticed an article by E.S. Browning in The Wall Street Journal entitled, "Stocks Face Dark Side of Gridlock in Capital". Basically, Browning contends that while Wall Street was excited both about tomorrow's elections and the Federal Reserve's announcement that it will support financial markets by buying bonds, it is now worried that it "overdid" things. Such is the way Wall Street works, unfortunately!

Investors see this type of thing goes on all the time: the future direction of stock prices are constantly debated in the media and whether or not the markets have more run to run, or if they've run their course. Browning goes on to write that "but longer term, some investors are starting to question two widely held tenets of election-related investing: that Washington gridlock is good for stocks, and that stocks inevitably rise in the third year of a presidential term, which is next year."

Readers who are part of Generation WISE understand that such thinking is truly worthless in the grand scheme of things. Sure, studies may show that Washington gridlock helps stocks or the political party of the President matters, among other theories. None of this matters over the long-term because we're not timing markets. As long as you're well-positioned for the future with an asset allocation that suits your return objectives and risk tolerance, you won' t have to worry about day to day market fluctuations.

Tomorrow is November 2 - Election Day - but you'd do best to tune out the noise and not worry about what predictive power such a short-term political change has on stock prices; it won't matter for the long-term investor.