- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Friday, March 27, 2009
Personal Finance Symposium
Today’s financial tip is a simple reminder about how important it is to take advantage of opportunities to learn from others and to occasionally attend speakers, seminars, and films that might be a tad outside of your experience. In light of this, I would like to offer an invitation to each of you to attend our Personal Finance Symposium on April 22, 2009 in Columbia, MO. We are grateful for the participation of our speakers and, as you’ll see, we have quite the distinguished lineup for you. The list of speakers in the flyer below. If, however, you want to hear T. Boone Pickens speak at lunch you need to Rsvp to our symposium very soon in order to receive one of the limited number of tickets the UM System has made available for our attendees (address information at the bottom of the flyer). Or, as we are working with President Forsee’s “Energy Summit” in making the T. Boone Pickens’s speech available to our attendees, you may link to https://extweb.missouri.edu/NewWebReg/NewIntro.aspx?tp=1&u=3&p=111989&d=MMchl/c9viAmiqA4cpUc3g , to request a ticket through the Energy Summit. Either event is free ($0 is inexpensive) but we are requesting a Rsvp. If you would like to have lunch with us at the Alumni Center, we are asking for $10 to be paid in advance. Of course you are welcome to eat on your own and, of course, please register and bring a guest.
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Friday, March 20, 2009
Home Just Got Sweeter
As Spring Break is upon many of us, I will be brief. (I know I’m already tardy with the financial tip, due to a technical glitch.)
Today’s topic is tax credits and, in particular, a new one for first time home buyers. For those that purchased their first home after April 8, 2008, they may claim the smaller of either $7,500 or 10% of the purchase price of the home as a tax credit. For those purchasing during 2009, this amount rises to the smaller of $8,000 or 10% of the purchase price of the home.
While tax credits generally reduce your taxes owed, dollar-for-dollar, this tax credit is a little different. If you claim the credit for a purchase made in 2008, it acts as a 0% interest rate loan that you must repay over a 15 year period. For a first-home purchased this year, you must repay the credit only if the home ceases to be your personal residence during a thirty-six month period beginning on the purchase date. To qualify, the home must be your personal residence and you and your spouse cannot have been the owner of any other main home during the three years ending on the date of purchase. Qualifying residences include a house, houseboats, house trailers, cooperatives, condominiums, or any other type of residence. (I’d recommend not trying the box under the bridge, however.)
Of course, there are some catches. Your modified adjusted gross income cannot exceed $95,000, if single, or $170,000 if married filing jointly. You cannot be a nonresident alien. The home cannot be outside of the United States. You cannot acquire the home by gift, from a related person (spouse, ancestor, or descendant), a corporation in which you own more than 50% of the value of the company, or a partnership in which you own more than 50% or the partnership.
The bottom line is, for many people, that this is a great opportunity to purchase your own home. For, unless I am missing something, if you purchase a home and live in it for three years, say while you are in graduate school, and then sell it for the purchase price or greater, the US Government pays you the lesser of either $8,000 or 10% of the purchase price. Or, if the sales price is lower than the purchase price, you have up to a $8,000 (or 10%) cushion. Can you think of a better way to get started on financial success? You either receive a gift of money or a gift of insurance against falling home prices. In the meantime you have begun to live the American Dream.
For more information: http://www.irs.gov/pub/irs-pdf/f5405.pdf
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Today’s topic is tax credits and, in particular, a new one for first time home buyers. For those that purchased their first home after April 8, 2008, they may claim the smaller of either $7,500 or 10% of the purchase price of the home as a tax credit. For those purchasing during 2009, this amount rises to the smaller of $8,000 or 10% of the purchase price of the home.
While tax credits generally reduce your taxes owed, dollar-for-dollar, this tax credit is a little different. If you claim the credit for a purchase made in 2008, it acts as a 0% interest rate loan that you must repay over a 15 year period. For a first-home purchased this year, you must repay the credit only if the home ceases to be your personal residence during a thirty-six month period beginning on the purchase date. To qualify, the home must be your personal residence and you and your spouse cannot have been the owner of any other main home during the three years ending on the date of purchase. Qualifying residences include a house, houseboats, house trailers, cooperatives, condominiums, or any other type of residence. (I’d recommend not trying the box under the bridge, however.)
Of course, there are some catches. Your modified adjusted gross income cannot exceed $95,000, if single, or $170,000 if married filing jointly. You cannot be a nonresident alien. The home cannot be outside of the United States. You cannot acquire the home by gift, from a related person (spouse, ancestor, or descendant), a corporation in which you own more than 50% of the value of the company, or a partnership in which you own more than 50% or the partnership.
The bottom line is, for many people, that this is a great opportunity to purchase your own home. For, unless I am missing something, if you purchase a home and live in it for three years, say while you are in graduate school, and then sell it for the purchase price or greater, the US Government pays you the lesser of either $8,000 or 10% of the purchase price. Or, if the sales price is lower than the purchase price, you have up to a $8,000 (or 10%) cushion. Can you think of a better way to get started on financial success? You either receive a gift of money or a gift of insurance against falling home prices. In the meantime you have begun to live the American Dream.
For more information: http://www.irs.gov/pub/irs-pdf/f5405.pdf
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Friday, March 13, 2009
Build Your Ark
Recently, I presented a program for the employees of a Missouri firm. It was their annual profit sharing meeting and each employee received a check for 54% of their 2008 W-2 wages. (Yes, that is not a typo. They received a check for 54% of their 2008 wages as their share of the profits from 2008.) While this is far from the bonuses of Wall Street, it points to the fact that great employers do exist and that some people have options that do not exist for others.
The point of my talk was to encourage them to save for their retirement, while possibly saving a portion of the 54% as a cushion against possible reductions in their hours during the remainder of 2009, as orders have slowed for this manufacturing firm. Importantly, it is the philosophy of the owner to reduce everyone’s hours, rather than to lay-off targeted employees. What did I tell them to encourage them to stay the course, as I did a similar program for them two-years ago when things were a little brighter than they are today?
First, the past ten years have been the worst investment years, since the 1920s. A 100% stock portfolio, if invested in the S&P 500, would have returned a 1.94% annual compound return with a standard deviation of 22.68%, while a portfolio of 60% S&P 500 and 40% bonds would have returned 3.54% with a standard deviation of 12.99%. Given that the standard deviation is an acceptable measure of risk, this is backwards - the higher risk portfolio has the lower return. In fact, one has to go back fifteen years to rectify this relationship and then the 100% stock portfolio had a paltry .01% annual compound advantage for nearly an 8% increase in standard deviation.
The above is good news. Every time we’ve recorded a ten year period, as dismal as the past ten years, it has been followed by ten years of healthy returns. Below is a picture of bear market declines and the subsequent recoveries for each bear market from 1901 through 1991. For each of these recessionary periods, the subsequent gains were, for the most part, larger than the decline that preceded it. While this picture doesn’t show it, I can add that the 2000-2002 period started with 49% decline in the S&P 500, followed by a 34%, 8%, and 7% gain in the subsequent three years.
What do you take home from this? First, remember what you know. There has never been an economic system as strong as ours. I will not bet against it and I encourage you to do likewise. Besides, if the economy continues to go down the proverbial drain, what safe haven exists and where will it be? Do you want to be there without the rest of us?
For financial success, remember your investment principles:
· Invest for the long-term, not the short term. Short-term investing is risky and is tantamount to gambling. Do not gamble with your goals.
· Invest in quality. Save the risky, venture investments for when you are able to withstand the loss of your money.
· Stay diversified across sectors and across firms. Use index mutual funds, if you prefer to match the markets.
· Investing is not easy and it requires discipline. If you missed the best 50 days of returns over the past 30 years, the 12% average of the S&P 500 would fall to 0%. (When you figure out when to predict when each of the next “50 days” are going to occur, please tell the rest of us so we can go “all-in”. For me, however, I continue to believe and invest in our collective future and I’m willing to accept the fact that “Timing is everything, but it is impossible”.)
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
The point of my talk was to encourage them to save for their retirement, while possibly saving a portion of the 54% as a cushion against possible reductions in their hours during the remainder of 2009, as orders have slowed for this manufacturing firm. Importantly, it is the philosophy of the owner to reduce everyone’s hours, rather than to lay-off targeted employees. What did I tell them to encourage them to stay the course, as I did a similar program for them two-years ago when things were a little brighter than they are today?
First, the past ten years have been the worst investment years, since the 1920s. A 100% stock portfolio, if invested in the S&P 500, would have returned a 1.94% annual compound return with a standard deviation of 22.68%, while a portfolio of 60% S&P 500 and 40% bonds would have returned 3.54% with a standard deviation of 12.99%. Given that the standard deviation is an acceptable measure of risk, this is backwards - the higher risk portfolio has the lower return. In fact, one has to go back fifteen years to rectify this relationship and then the 100% stock portfolio had a paltry .01% annual compound advantage for nearly an 8% increase in standard deviation.
The above is good news. Every time we’ve recorded a ten year period, as dismal as the past ten years, it has been followed by ten years of healthy returns. Below is a picture of bear market declines and the subsequent recoveries for each bear market from 1901 through 1991. For each of these recessionary periods, the subsequent gains were, for the most part, larger than the decline that preceded it. While this picture doesn’t show it, I can add that the 2000-2002 period started with 49% decline in the S&P 500, followed by a 34%, 8%, and 7% gain in the subsequent three years.
What do you take home from this? First, remember what you know. There has never been an economic system as strong as ours. I will not bet against it and I encourage you to do likewise. Besides, if the economy continues to go down the proverbial drain, what safe haven exists and where will it be? Do you want to be there without the rest of us?
For financial success, remember your investment principles:
· Invest for the long-term, not the short term. Short-term investing is risky and is tantamount to gambling. Do not gamble with your goals.
· Invest in quality. Save the risky, venture investments for when you are able to withstand the loss of your money.
· Stay diversified across sectors and across firms. Use index mutual funds, if you prefer to match the markets.
· Investing is not easy and it requires discipline. If you missed the best 50 days of returns over the past 30 years, the 12% average of the S&P 500 would fall to 0%. (When you figure out when to predict when each of the next “50 days” are going to occur, please tell the rest of us so we can go “all-in”. For me, however, I continue to believe and invest in our collective future and I’m willing to accept the fact that “Timing is everything, but it is impossible”.)
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Friday, March 6, 2009
“Step Out” to move up
Monday of this week myself and three of my students traveled to an inner-city high school in St. Louis. You know the kind of school: built 90-100 years ago with granite, marble, and an indoor swimming pool for the upper-middle class children of the time. Today, there is a metal detector as you enter, a half-dozen police officers patrolling the halls, the pool is dysfunctional, wires dangle overhead to provide access to current technology, and a dedicated and loving faculty are doing their best, under extreme conditions and limited resources, to make a difference in the lives of their students.
When meeting with these children, I was struck with the fact that each child would like to do better than they are doing. They would like to continue their education. They would like to succeed. They would prefer to not cook hamburgers for a career. The sad thing is that most of them do not know what they need to do to reach these goals. They receive scant support from their families, churches, and others. Yet, they smile like most kids, dream like most kids, and are scared like most kids.
I asked them, “Who have you talked to in your local community; pastors, community college representatives, or school counselors; to get some specific advice about what you need to do next?” Almost to a child, they had not talked to anyone and had not made plans about what they are going to do after graduation. They do not think that others care. Of course, we encouraged them to “step out” and talk with people - as many people as possible. Gratefully, about a third of them requested more information about the University of Missouri, although some did not know the difference between a major research institution and a community college. In case you’re wondering, we will be going back next year to visit them and they are making plans to visit us in the fall.
What does this have to do with a financial tip? I want to ask each of you a simple question. Have you “stepped out” to deal with your financial life? Are you budgeting? Have you reduced some of your frivolous expenditures to save for your goals? Have you prepared your net-worth statement? When was the last time you reviewed your insurance coverage, or rebalanced your portfolio? Are you smiling as you think about your answers, while you hide your uncertainty with respect to your financial future?
This tip is simple. Take some time and DO some of the things you know you need to be DOING to create financial success. I have often said that the best financial plan in the world is absolutely worthless, unless it is implemented. A poor plan that is implemented is often better than a good plan that is not. For March, take a few steps toward implementing your plan. You know many of the things that you need to be doing. Today is a good day for you to “step out” and do them.
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
When meeting with these children, I was struck with the fact that each child would like to do better than they are doing. They would like to continue their education. They would like to succeed. They would prefer to not cook hamburgers for a career. The sad thing is that most of them do not know what they need to do to reach these goals. They receive scant support from their families, churches, and others. Yet, they smile like most kids, dream like most kids, and are scared like most kids.
I asked them, “Who have you talked to in your local community; pastors, community college representatives, or school counselors; to get some specific advice about what you need to do next?” Almost to a child, they had not talked to anyone and had not made plans about what they are going to do after graduation. They do not think that others care. Of course, we encouraged them to “step out” and talk with people - as many people as possible. Gratefully, about a third of them requested more information about the University of Missouri, although some did not know the difference between a major research institution and a community college. In case you’re wondering, we will be going back next year to visit them and they are making plans to visit us in the fall.
What does this have to do with a financial tip? I want to ask each of you a simple question. Have you “stepped out” to deal with your financial life? Are you budgeting? Have you reduced some of your frivolous expenditures to save for your goals? Have you prepared your net-worth statement? When was the last time you reviewed your insurance coverage, or rebalanced your portfolio? Are you smiling as you think about your answers, while you hide your uncertainty with respect to your financial future?
This tip is simple. Take some time and DO some of the things you know you need to be DOING to create financial success. I have often said that the best financial plan in the world is absolutely worthless, unless it is implemented. A poor plan that is implemented is often better than a good plan that is not. For March, take a few steps toward implementing your plan. You know many of the things that you need to be doing. Today is a good day for you to “step out” and do them.
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
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