Archive for All Financial

From the Tower to the White House

The enigma of the presidential candidate’s business affairs

WHEN Donald Trump announced that he was running for the White House, there was only one venue for his speech: Trump Tower on Fifth Avenue. The skyscraper has been central to Mr Trump’s business life. Built between 1979 and 1984, it was a triumph for a young property mogul whose father rented out mere apartments in Brooklyn. Nearby is the Plaza Hotel, which a middle-aged Mr Trump sold in 1995 after his casino operation folded. Today half his wealth is still tied up in buildings within a four-mile radius of this spot. The Tower’s bar exemplifies Mr Trump’s late-life pivot to the business of celebrity, with cocktails named after his TV show The Apprentice, which was filmed there. A gift shop stocks Trump aftershave that “captures the spirit of the driven man”.

Mr Trump’s drive and ownership of Trump Tower are among the few clear and consistent features of his 40-year business life. Much else is opaque, volatile and contested. Mr Trump sees himself as a largely self-made man whose global career qualifies him to be president: “Nobody in the history of the presidency has been nearly as successful as I have,” he says. Rivals in the Manhattan property game think he has taken his eye off the ball. His enemies say he inherited a fortune and built upon it an empire of defaults and exaggeration. To others Mr Trump is a mere celebrity playing a dangerous political game: a cross between Mussolini and the Kardashian clan.

Which version is right? A review of Mr Trump’s career, his filings with regulators and third-party estimates of his wealth, suggests four conclusions. First, his fortune is in the billions of dollars. Second, his attempt to shift away from debt-heavy property and to create a global brand has been a limited success. About 93% of his wealth sits in America and 80% is in real estate (including golf courses). Third, Mr Trump’s performance has been mediocre compared with the stockmarket and property in New York. Lastly, his clannish management style suggests he might be out of his depth if he ran a larger organisation.


“I’ve been through cycles, I’ve been through a lot,” admits Mr Trump. His career can be split into three stages. The era of debt-fuelled expansion was in 1975-90. Mr Trump’s big break was the renovation of a site at Grand Central Station, which is now occupied by the Hyatt Hotel. He raised cash, found a tenant, secured permits and completed a complex building job, according to his biographer, Michael D’Antonio. Buoyed by success he went on a long spree, buying buildings in a depressed Manhattan (including the site of Trump Tower), expanding into casinos in Atlantic City and picking up a small airline. His investments over this period were worth perhaps $5 billion in today’s money, with four-fifths of that debt-financed.

The era of humiliation came in the 1990s, as the casino business faltered and two of his gambling entities defaulted (two other related casino enterprises defaulted in 2004 and 2009). This destabilised the whole of Mr Trump’s operation, which may have had as much as $6 billion of debt in today’s prices. Through asset sales, defaults and forbearance from his creditors, Mr Trump clung on and avoided personal bankruptcy. As property prices in Manhattan rose he recovered his poise, and by the early 2000s he was doing small deals again, for example buying the Hotel Delmonico on New York’s Upper East Side.

The final stage, of celebrity, came with his starring role in the The Apprentice in2004. The success of the TV show, which had 28m viewers at its peak and ran until 2015, led Mr Trump to create a flurry of ventures to cash in on his enhanced fame. He is now involved with 487 companies, up from 136 in 2004. They span hotel licensing in Azerbaijan and energy drinks in Israel. At face value Mr Trump has turned his name into a global brand that prints cash.

The numbers of the beast
Information about Mr Trump’s business is sketchy. He doesn’t run a publicly listed firm, and does not appear to have a holding company into which his assets are grouped. He releases a one-page, unaudited, estimate of his wealth. He has also made a filing on his finances with the Federal Election Commission (FEC), although this does not specify the value of assets worth over $50m and may not include all kinds of income. Estimates of his wealth have been made by Forbes magazine and Bloomberg, a financial-data provider.

In the New York property world Mr Trump is perceived to have gone off the boil in the past decade—“He’s been distracted,” says one broker—with other developers doing bolder projects, such as the Fisher and Durst families, and Gary Barnett. But there is not too much disagreement about the value of Mr Trump’s existing buildings and golf-resorts. The contentious bit is his branding operation. According to his FEC filings, this generated about $68m of income in 2014. Valued on a multiple of ten to reflect the fact contracts are finite, this is worth $680m. Based on a composite of figures from the FEC, his estimates, real-estate brokers and Forbes, Mr Trump is worth $4.3 billion.20160220_USC940

Whether he has transcended the business of property to become a global brand isdebatable. His appeal is strong in golf, where Trump-flagged resorts are well regarded. Mr Trump’s name carries less cachet in hotels or consumer goods, and does not travel well beyond the country he says he wants to make great again.

Of his wealth, only an estimated 7% is outside America and 66% is made in New York. Only about 22% of his worth is derived from assets that he actively created after 2004, when he became a reality TV star. Some 64% is from conventional property and a further 17% from resorts and golf clubs. His biggest recent deal has been in real estate: buying the Doral hotel in 2012 out of bankruptcy. Only 11 of the licensing and branding companies created since 2004 make more than $1m of income. Mr Trump says there are 38 more deals in the pipeline but it is hard to know their worth.

Mr Trump’s performance is tricky to gauge, too, because early estimates of his wealth may have been overstated. We take three starting points and use Forbes’s data (see chart 2). The best long-term starting point is 1985, when Mr Trump first appeared in the rankings without his father. The most generous starting point is 1996, when Mr Trump had just clawed his way back from the abyss. The final starting point is a decade ago.

20160220_usp002Judged from the low point in 1996, he has outperformed the S&P 500 index of big firms and the New York property market. Judged by his long-term record, he has done poorly. And over the past decade Mr Trump has lagged both benchmarks. His ranking among American billionaires has fallen from a peak of 26 to 121—by the standards of the country’s oligarchy, he is small beer. His property empire is a seventh the size of America’s biggest real-estate firm.

Mr Trump was sensible enough to get out of casinos in Atlantic City. But he missed out on the industry boom in Macau that propelled erstwhile rivals such as Sheldon Adelson of Las Vegas Sands into a different league. Mr Adelson is worth $26 billion, according to Forbes. When considering Mr Trump’s performance, one should also spare a thought for outside investors in his projects. Many have made money. But roughly $5 billion of equity and debt (at current prices) from outsiders sat in Trump vehicles that went bust.

What of Mr Trump’s management style? His attributes are charisma, spontaneity, frequent communication and quick decision-making. He is a fine negotiator, grinding down the other side with charm and relentless tweaks of the fine print. “He is incredibly charming and deeply frustrating,” says someone who has acted for him. A former top executive at the Trump organisation says, “People think he is running everything from 30,000 feet, but it is the opposite. He knows if the carpets were cleaned and every clause in the contract.”

The flip side of Mr Trump’s personality is volatility, with explosive outbursts and unpredictable behaviour. “He’s not stable. He has a nuclear temper,” says the same source, who recalls spittle flying and desks being swept empty. Throughout his life Mr Trump has pursued energy-sapping feuds.

Just as his campaign machine is improvised, he appears to have a puny apparatus to support his business. The Trump organisation has a dozen key executives, including Mr Trump’s three eldest children, Donald, Ivanka and Eric. Based on the FEC documents, the structure of the Trump organisation is crude, with most of the legal vehicles owned directly by Mr Trump, rather than being grouped together… more @ Economist


In Checking Accounts, the Less You Have, the More You May Pay

Financial complexity doesn’t happen only on Wall Street. Even a basic checking account is often no longer simple, because account rules and fees can vary widely — so widely, in fact, that the annual cost can range from zero to more than $700, according to the 2014 survey of checking account costs by WalletHub, a consumer finance information and social networking site.

The general rule is that the less money you hold in a bank, the more you pay the bank in fees. The biggest fees fall on consumers who overdraw their accounts, a common practice among less-well-off customers, whom WalletHub calls “cash strapped.” People in this category typically don’t have credit lines or savings accounts to cover them when their balances drop below zero, and their fees add up.

To assess the amounts paid by these customers, WalletHub examined the annual fees on a checking account for someone who overdraws 12 times a year, uses an out-of-networkmoney A.T.M. once a month and averages an end-of-month balance of $50. The range of costs was enormous: as low as $2.83 at Capital One and as high as $735 at M&T Bank. (Capital One’s costs were low largely because it charges an 11.25 percent annual percentage rate on the amount a customer actually overcharges, instead of charging a fixed dollar amount in overdraft fees, which is typical in the industry. In addition, Capital One doesn’t assess out-of-network A.T.M. fees.) Over all, the average annual cost of a checking account for consumers in this category was $499.02.

People with more money tend to pay lower fees. In fact, WalletHub found, the average annual cost for customers whose monthly balance never drops below $5,000 and who use only their own bank’s A.T.M. machines was just $17.85.

That’s why customers who are short on cash can be valuable for banks. Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study. For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.

Despite New Opt-In Rules, Overdraft Fees Still Baffle Consumers

OverdraftIT has been nearly four years since rules went into effect to help clarify when banks may charge you penalties if you overdraw your checking account using your debit card. But many people remain confused about so-called overdraft fees, a new report finds.

The report from the Pew Charitable Trusts found that in 2013, 10 percent of adults with checking accounts paid at least one overdraft fee — that is, a fee for a short-term advance from their bank to cover a shortage in their checking account. Another 5 percent paid an overdraft transfer fee, charged for transferring funds from another account or a credit card. People who overdrew reported paying fees averaging $69. The typical overdraft fee was $35, but banks may add extra fees if the shortage isn’t covered quickly.

In 2010, federal rules took effect that required banks to ask customers to affirmatively choose — to opt in — if they wanted overdraft protection on their debit cards. That means that if you use your debit card to make a purchase or withdraw cash from an A.T.M., and overspend your balance, your bank will process the transaction and cover the shortage with a temporary advance, in exchange for a fee. If you don’t opt in, transactions are declined, with no fee.

Yet more than half of those who were charged an overdraft fee when using their debit card say they do not recall agreeing to the service, the Pew report found. That suggests the banks aren’t explaining their overdraft policies clearly and raises questions about how overdraft protection is marketed, the report said.

Susan Weinstock, director of consumer checking for Pew, said in a briefing with reporters that a suggested form for explaining overdraft options, provided by the Federal Reserve for use by banks, may be confusing for consumers. “That form needs some work,” she said. Pew has proposed a simple disclosure box that banks could use to explain overdraft options to their customers. “It would help resolve the confusion that we have seen is so prevalent in the marketplace,” she said.

Still, the report noted that the proportion of people who said they had paid at least one overdraft fee had declined two percentage points, from 12 percent in a survey Pew did in 2012. Ms. Weinstock said it was not clear what caused the decline. The proportion of people paying transfer fees was unchanged, at approximately 5 percent.

Overdraft fees are a big source of fee income for banks, the report notes. Banks collected an estimated $16.7 billion in such penalties in 2011, at least $6 billion of that brought in by debit card use.

Young adults and lower-income and nonwhite Americans are more likely to be charged overdraft fees. Those with a credit card, however, are much less likely to pay the fees, the report found.

The report is based on a December telephone survey of more than 1,800 people by Social Science Research Solutions. The survey included people who had been charged overdraft and transfer fees, as well as people who had transactions declined and those who had never overdrawn. The margin of sampling error is plus or minus 2 percentage points.

student cards

Credit Cards for College Students and Recent Grads

Graduating from college can be an exhilarating and daunting experience — all at the same time.  With the average student leaving college with record levels of debt, managing your money now is much more complicated that it has been in years past.  For these reasons, it makes sense to watch for new credit card opportunities as they arise.

There is a common school of thought that suggests the use of credit cards — any use of credit cards — is a always bad thing.  But nothing could be further from the truth.  Credit cards are actually a great way to efficiently manage your budget by keeping and recording all of your expenses in one place. Here, we look at some of the best credit card choices for recent college graduates in 2015.

Best Cardholder Bonus:  BankAmericard Cash Rewards for Students Credit Card

For those interested in a great initial bonus, the BankAmericard Cash Rewards for Students Credit Card might be the best option:  When you spend $500 in your first 90 days after opening your account a $100 cash bonus will be credited to your balance.  After that, you can still capture 3% cash back on all gas and 2% on groceries (on the first $1,500 spent in those categories each quarter) in addition to 1% on everything else. You’ll also get a 10% rewards bonus when you redeem for a BofA bank account contribution. There is no annual fee.

0% Balance Transfers:  BankAmeriCard Travel Rewards for Students Card

Since most college students are already leaving school with at least some debt, many will want to consider a 0% balance transfer card.  These cards will allow your to pay off your current creditors and give you since extra time to get your finances in order before making your payments.

The BankAmeriCard Travel Rewards for Students Credit Card offers a 0% interest rate on both balance transfers and new purchases for the first 12 months you hold the card.  Interest rates normalize to 14-22% after this grace period completes itself.  But for those looking to make large purchases after college, this is one of the most flexible options out there.  On the downside, there is a balance transfer fee of 3% but there are no annual fees associated with this card and there are extra rewards point for purchases made while traveling.

You can apply for the BankAmeriCard Travel Rewards for Students Credit Card here.

When we look at these choices, some key characteristics should become obvious for college students and recent graduates.  Specifically, these cards are designed to allow you to maintain low interest rates on your previous balances and even for new purchases.  This is critically important because the average college student is starting to accumulate significant debt loads for the first time.

If you have difficulty paying your minimum balances during these years, it becomes easy to quickly ruin your credit score before you even start to enter the workforce.  In personal finance terms, this is a clear recipe for disaster — and something that could create significant problems for your long-term financial health.  For these reasons, students and recent graduates need to pay special attention when choosing the card that is most appropriate.


5 best

5 best stocks for a long term portfolio strategy

Picking stocks to buy and hold requires investors to identify companies with great long-term fundamentals that still offer value.  Timing the stock to buy it at a good entry point in its cycle or fairly priced versus its growth potential are both keys.  The stocks listed here all fit that profile for investors.

Qualcomm (QCOM)

Qualcomm is a great way for investors to play the ongoing growth of mobile technology around the world.  The company manufacturers and licenses technology used in mobile devices.  It has content in almost every 3G and 4G device sold.  The increasing use of smartphones and tablets will continue to generate revenues for Qualcomm well into the future.  Smartphone adoption in the developing world will continue to expand and drive long-term revenue growth at the firm.  A forecast from Strategy Analytics forecasts smart phone sales of 320 million units in 2014 and 350 million in 2015.  Qualcomm has a market share of 59% in the chipsets of smart phones.  It is more ideal than companies like Apple (AAPL), Google (GOOG), or Samsung in our view, because it benefits no matter which company wins in smart phones.

Qualcomm has as strong cash position with around $15 per share in excess cash and continues to generate significant FCF.  It trades at a discount to big tech peers at 15.6x TTM earnings and 12.7x FY16 EPS.


Lowe’s (LOW)

The housing sector and DIY business continues to slowly improve in the U.S., and housing starts have not rebounded to even normalized levels.  With an outlook for sustained long-term improvement in housing, home centers also benefit.  In addition, the retail sectors as whole is also improving behind U.S. economic growth and increasing consumer spending.  Multiples tend to expand in that environment, and the share price of Lowes should benefit from all these trends.

Lowes also has room to expand margins whereas most retailer are currently trying to defend them.  The online push from Amazon (AMZN) is impacting many retailers.  However, consumers still shop and buy DIY, hardware, and other core products for Lowes in physical stores.  The company is also in the midst of a value improvement initiative that could further help margins.

Internal initiatives at Lowes, its defensible position in retail, and trends in the U.S. economy are all positive.  It is a good fit for investors to buy and hold long-term in this environment.

LOW (CRM) is the clear leader in its sector in both innovation and market share.  Forecasts are for its revenues to continue to grow at 30% per year for the next few years.  Gains in its cloud-based products will drive its growth and could generate additional share gains.   In addition, it should continue to consolidate its space and make further acquisitions.

The ability of to continue achieving growth rates of ~30% per year despite its size is impressive.  It is the leading SaaS company and is gaining share in enterprise applications.  Its large client base in its platform also presents the opportunity to upgrade customers to higher margin products as they grow.  As continues to grow over the long-term and beat revenue and cash flow forecasts, the stock price should follow suit.


Twitter (TWTR)

Social media is here to stay so holding one of the key players for the long-term makes sense.  While Facebook (FB) is currently king and making money, threats to its status as king in the long-term do exist.  It has uncertainty around growth in its user base and the level of user engagement.

On the other hand, Twitter is increasing the number of active accounts with 284 million users on the service currently.  Revenues are doubling every year, and it should start to generate profits.  With strong relationships with advertisers and users, Twitter is here to stay.  The stock is trading at $37.57, well below its high of close to $70.  The valuation is more reasonable at this entry point.


Caterpillar (CAT)

Caterpillar shares had a difficult 2014, rising to $110 in July before a big pullback to its current share price of $83.97.  A slowdown in the global economy, especially the developing world and in Europe, has weighed heavily on the shares.  The economic outlook negatively impacted both its construction equipment business along with an already softening mining equipment segment.

However, Europe will rebound and the developing world will again start to grow.  Both construction activity and raw material consumption will rise as a results which both drive CAT’s business.

Owning CAT in a long-term portfolio provides exposure to global economic growth.  It is the best-in-class operator and also has a current dividend yield of 3.3%.  The stock trades at 12.4x FY15 EPS, on the low end of its historic range.  Earnings should resume growth in 2016, and the share price should follow.


Housing Outlook is Mixed, Investors Should Look for Indirect Exposure

Housing Outlook is Mixed, Investors Should Look for Indirect Exposure

The U.S. housing market periodically shows signs of life, but with each resurgence in optimism follows a period of disappointment as expectations rise too quickly.  Housing starts remain below normalized levels based on historic data, and the timing of a recovery is uncertain despite improvements across other sectors in the U.S. economy.  While the housing market is slowly improving, the outlook and pace of a recovery remains uncertain.  Investors looking for housing should look to stocks with indirect exposure due to the risks that remain.

December Results were Mixed

Data released on January 21, 2015 indicated that new starts were up 4.4% in December, a positive swing at year-end.  Single-family homes, which had previously lagged apartments, were up 4.5% in the month, the largest increase since September 2012.  However the results were mixed.  Permits, an indication of future activity, were down 1.9%.


Low interest rates, favorable government policies, interest from overseas buyers, and affordable prices should have all come together to make the housing market one of the first to recover.  However, housing starts are lackluster.  In the chart, note that while starts are on an upward trend, they are still at historic trough levels when looking at the data back to 1959.

The market should be stronger by just looking at mortgage rates.  Rates have continue to decline over the past year, especially on 30-year fixed rate mortgages (FRM).  Thirty-year FRMs are down to 3.66% from just under 4.5% in January 2014 (see following chart).  The problem is not the price of money, but the unwillingness of banks to soften the lending standards to those without the most perfect credits.


Tight Mortgage Policies at Banks

Lending policies remain tight at banks, and they are still selective on mortgage lending.  The large penalties most banks had to pay after the crisis has caused increased caution in loan standards.  This continues to weigh on the resale market and on new starts.

Tight credit is a big problem for the housing market. Unless the buyer has outstanding credit, finding a loan is difficult.  This is despite low interest rates, and banks looking to invest their money.  Many banks are increasing loans in other parts of the business that have less regulatory risk.  Currently, the new regulations require that if a bank errors in a loan it underwrites, it must repurchase those loans.

Fannie & Freddie Relax Standards

The Obama Administration is implementing new policies to try and loosen up the mortgage market.  Fannie Mae and Freddie Mac recently adjusted lending standards for packages of mortgages they back.  The new policy allows for down payment requirements as low as 3%.   Also, to address the threat banks could face from having to repurchase loans, Fannie and Freddie have more clearly laid out what issues would trigger an event.

The FHA also took action and cut the annual mortgage-insurance premium to 50 bp to 0.85%.  HAMP was also extended beyond 2015 as the current backlog to extend repayment terms is still over 200,000.

While these actions are somewhat marginal, the government lacks significant levers to pull.  Interest rates are already low and concerns remain in the market from the housing bubble.  That said, these actions and a rebounding economy could be enough in 2015 to act as the catalyst for a more robust recovery in housing.  Some markets are showing positive signs on the margins.

Marginal Data from Redfin is Positive

Data from Redfin, a real-estate broker, indicates that 35% of homeowners are renting out homes prior to selling versus 39% in 2013.  This shows increasing confidence in current prices.   Data from the same firm shows that only 11% of homeowners in its market had negative equity in November 2014 compared with 19% in the previous spring.  This increases homeowners’ confidence in the market and increases the likelihood they look to trade-up to pricier homes.

Stock Ideas to Play Housing for 2015

While the timing of a recovery remains uncertain, investors looking to find stocks with housing exposure to benefit from a recovery should look to mortgage writers and related retailers.  A financial like Wells Fargo (NYSE: WFC) or Bank of America (NYSE: BA) will benefit when the number mortgages they underwrite starts to increase.  Home improvement centers like Home Depot (NYSE: HD) and Lowes (NYSE: LOW) should also benefit from an improving housing market and a stronger retail outlook for 2015.    Even Target (NYSE: TGT) benefits when housing improves, since people that move purchase new home related products.  Homebuilders are a more direct way to gain exposure to the market.  Each one has a certain profile, so investors should dive into this a little deeper to understand geographic and segment exposure.

The Outlook Remains Uncertain

Analysts have a wide range of views on housing recovery for 2015.  While some expect double-digit increases, the more common view is for growth in the single-digits with some room for an upside surprise.  Investors should continue to closely watch the data as an economic barometer, but also to time entry into housing related equities.  Investors with a longer investment horizon, can look to invest in housing related stocks that should increase in value when the recovery does finally occur.


Tax Preparation: Should You Do It Yourself Or Hire A Pro?

Filing income taxes is no small task to undertake. You must compile income earnings reports, tax statements, receipts for deductions, and certain legal documents in order to get started. Once tax preparations begin, you must also significant amount of free time to go through the nuances of the ever-changing IRS laws. These facts are true whether you meet with a tax professional or file on your own, but which choice is better for you? There are pros and cons to both.

Hiring a Tax Pro

Theoretically, a tax preparation specialist spends years studying tax law. Because laws change every year, a pro knows to stay on top of those changes, ensuring that you will have as little tax burden as possible, all while helping you to avoid an audit. Another bonus is that you can hand over your paperwork and go about your day while your taxes are done for you.

On the downside, professionals can be fairly costly. Likewise, if you hire a service that relies on a high volume of clients, you may not receive the hands-on care for which you are paying.

You Should Hire a Professional if any of the following are true:

  • You earn more than $200,000 per year
  • You have overseas banking/investment accounts
  • You are a business owner
  • You practice day trading
  • You have a large number of deductions
  • You have little free time on your hands
  • You are not confident with your own accounting skills

DIY Tax Filing

There are a lot of reasons to skip the professionals and do your taxes yourself. It is less expensive, the timing is flexible, and you have the ability to be as meticulous as you wish. Conversely, doing taxes yourself means that you must have the time and care to do a thorough job. Tax law is extremely confusing, even to professionals at times, which makes a proper job even more difficult. If you are audited, you will need to hire a tax attorney who is unfamiliar with your earnings.

Tax preparation software helps with understanding the complexities to income tax filing. Many choices also give you the option of hiring a tax consultant or audit representation. Unfortunately, these can sometimes cost nearly as much as hiring a pro from the outset.

You Should Hire a Professional if some or all of the following are true:

  • You earn under $200,000 per year
  • You have few income streams to report
  • You need flexibility with your hours
  • You have a quiet space to work
  • You have little money to spend on a tax pro
  • You are adept at math and organization
  • You enjoy accounting-related tasks

If you are still unsure about filing your taxes yourself, and you have some flexibility with your time, it may be wise to start your taxes at home. You can begin with a free tax preparation program or by completing free forms online. The IRS provides these items for you here. Once you get started, you may be able to judge more accurately if you can and should file your own taxes.

Even if you plan on hiring a professional, it is a good idea to understand tax law and deductions as completely as possible. One of the best ways to learn is with hands on experience.

Tax Prep Help

Some may be able to have the best of both worlds. The Volunteer Income Tax Assistance program provides tax help from certified tax preparers to people who want to file their own taxes. The program is free to those who qualify.

You may qualify for VITA if you…

  • Earn under $53,000
  • Have certain disabilities
  • Are a senior citizen
  • Do not speak English as your first language

Even if you don’t qualify for VITA, you may receive assistance through Tax Counseling for the Elderly if you are 60 or older. Click here to find the closest VITA or TCE center.

If you don’t qualify for free tax help under VITA or TCE, but you still want to file your own returns, you do have another option for answering any of your tax questions. The IRS has an Interactive Tax Assistant with FAQs and a searchable database. The ITA takes you through a step-by-step process pseudo-interview process with a goal to answer your questions thoroughly and with no fees.

long term view

Ready to Invest in an Index Fund? Make Sure You Take the Long-Term View

Stock market investing has surged in popularity over the last five years.  This is largely because stocks have rallied strongly and earned back all of the losses that were seen during the collapse of 2008.  It seems as though the Dow Jones Industrials and the S&P 500 are making new record highs every time we turn on the financial news.  So, what is the best way to capitalize on these trends?  Is there still money to be made using index funds?  For those willing to take a long-term outlook, the answer is a clear “yes.”

Index Funds Defined

So, what exactly is an index fund?  An index fund is an investment instrument that tracks the performance of a benchmark stock index.  Key examples here include the S&P 500, Dow jones Industrials, NASDAQ, and Russell 2000.  Index funds provide broad exposure to a large number of stocks and a wide variety of market sectors.   Ideally, when selecting a fund you want to fund instruments that have minimal portfolio turnover and low operating expenses.

This essentially means that the management costs will not eat into your profit potential and that the fund itself does not make many changes in the stocks that make up the fund.  Not all index funds are created equal, so these are factors that will need to be considered before you start investing any real money in these vehicles.

Taking a Long-Term Outlook

The next factor to consider is the length of time you plan to be invested.  When we look back at stock market history, we can see that fortune clearly favors those that establish positions for the long-term.  One of the biggest mistakes that new investors tend to make comes when thinking it is easy to “time the market” and take short-term day trades as a strategy for success.

But, unfortunately, there are very few examples of traders that have actually been able to make these types of strategies work in any consistent way.  Stock markets are notorious for experiencing short-term price fluctuations that are volatile and unpredictable.  It is a great mistake for new investors to think that they can overcome these historical tendencies — and when this is approached in the wrong way significant losses can accumulate quickly.  It is a much better idea to stick with the broader, long-term trends as this will generally produce the most substantial returns.

Broad Index Trends are Generally Positive

Of course, it cannot be argued that any “buy and hold” strategy will profit in the stock market.  There are certainly months — and even years — where the trend is negative and losses can accumulate.  But when we look back through history it quickly becomes clear that most years are positive for the stock market and that conservative strategies tend to profit over time.

Let’s consider the S&P 500, which is the most commonly watched stock index.  On average, the S&P 500 will produce annual gains of around 12%.  This is not something that can be said for individual stocks.  So for those looking for investment strategies that have truly proven themselves over time, there is no better alternative than to choose a commonly watched stock index and allow the broader market trends to establish themselves.  An added benefit for this type of strategy is that it takes most of the guesswork out of choosing individual stocks.  It is also much easier than looking to time the market and benefit from short-term trends.

For these reasons, investors can remove a good deal of risk when investing in a stock index with a long-term, conservative outlook.  Short-term strategies are much more likely to put your retirement savings at risk — and if you are unable to accurately time the market you could encounter losses that should have been avoidable.


filing taxes

Need to Know Info About Filing Your Income Tax

January is nearly at a close, which means most residents of the US are preparing their 2014 income tax returns. Whether you are expecting a big refund or dreading writing that check to Uncle Sam, make sure you have all the information you need before you complete this yearly chore.

You Can File for Free

Tax preparers make a fortune off of individuals who must file income taxes but do not want to carry the burden on their own. However, income tax preparation can be very simple and extremely inexpensive. This is especially true if you have few avenues of income and no special situations.

A family that makes under $60,000 per year can use this IRS tool to find a free software program. It is important to note that some companies, like TurboTax, offer free state filing as well, while other companies may charge a fee for this additional service.

If you make over $60,000, the IRS makes online forms available to you. These forms do not give you the same guidance as a software program, and they only apply to federal taxes.

Not Everyone Has to File

Some individuals find themselves going through the frustration of filing taxes though they do not have to according to the law. However, according to the IRS, even those who do not have to file should in order to get any refund that is owed to them.

Use this tool to learn if you can avoid filing a federal income tax return. In all likelihood, you will need to file a state return regardless of your federal status.

You May Have More Deductions Than You Realize

Deductions are arguably the most confusing aspect of income tax. Earnings are fairly straightforward: You report everything you earn throughout the year, including interest, winnings, and inheritance. However, there are some business expenses that you may think you can deduct that you cannot, and there are many deductions that you should take that you might not even consider.

Charitable contributions are tax deductible if you itemize. Any time you decide to donate garage sale leftovers, old furniture, or used clothing, be sure to calculate their reasonable worth and get a receipt. This goes for any other type of donation that is made to a not-for-profit organization. Note: Some charities offer free event tickets, food items, or other prizes when you donate. If you accept any of these, you cannot make the deduction.

State sales taxes are oft-overlooked deductions that can make a significant difference in the final figure. Use the IRS Sales Tax Deduction Calculator to get an idea of how much you could deduct on your taxes.

Were you looking for a job in 2014? You can deduct some job-hunting related expenses. This might include resume services, transportation, and even food and lodging if you are paying out-of-pocket to seek out-of-town jobs. You cannot deduct clothing even if it was purchased specifically for interviews. You also cannot make this deduction if you were employed while you were looking for work elsewhere.

Audits Are Rare and Mostly Avoidable

If you are both honest and meticulous when it comes to tax time, you are highly unlikely to face an audit. The IRS prefers not to conduct audits because they are very expensive and time-consuming. Indeed, only about one percent of tax filers face an audit each year.

If you want the lowest risk of an audit, avoid the “red flags” that cause the IRS to take a closer look at your return. While the largest red flag items may not be entirely truthful, like earning more than $200,000 or claiming a loss on rental properties, others can and should be double checked before filing the final tax documents.

Make sure to report all earned income. This includes primary employment, part-time jobs, gambling winnings, sweepstakes prizes, and inheritance. Debt forgiveness is also considered as a type of income and, unless the debt informally between two friends, it was likely already reported to the IRS. If your income does not match what the IRS already has on file, an audit may be on the horizon.

Excessive business deductions may lead to an audit as well. Significant travel expenses, entertainment expenses, clothing, and even surgeries that have been said to be job related have triggered audits in some cases. You should be able to deduct legitimate business expenses, but you need to always make sure that they are deductible items.

You Can Track Your Refund Online

The IRS has a tracking tool for refunds. You will need to remember the exact amount of your refund in order to check the status, which is updated once each day. If you are filing jointly with a spouse, you will also need to have the social security number for the head of household.


Stretch Vacation Dollars With Off-Season Travel

Travel dollars are often thought of as strictly entertainment expenses, which means that they are inessentials that are sadly pushed aside with relative ease. This is unfortunate, because many studies have shown that vacations are essential for overall health and happiness. Those who take regular vacations lower their risk of heart disease by 32 percent. They are also more productive and less stressed than their non-vacation seeking counterparts.

Vacations also stimulate the economy. The travel industry generates approximately $1.5 trillion per year and creates over seven million jobs. A recent Oxford Economics study shows that, if US workers took all of the vacation time they were allotted, an additional 1.2 million jobs would be created and an additional $52 billion would be added to the industry.

Of course, all of this information does little for those who believe they cannot afford to travel. Nearly half of all US workers with paid time off avoid spending vacation dollars, largely because they believe they cannot afford to travel. Luckily, there is a way to get away without over-spending.

Travel During the Off-Season 

The off-season, also referred to as low season, is the time when a location experiences its fewest number of visitors. Fewer tourists can be due to simple timing or expectations of poor weather. During this off-season, many expenses can be quite inexpensive. Hotels lower prices in order to fill their empty rooms. Airlines may drop prices in order to avoid flying without a full cabin. Cruise ships offer rates that make nearly any land-lubber excited to sail. Entertainment and even meals can be less pricey when businesses simply need to get more bodies through the door. Indeed, traveling during the off-season can allow tourists to experience the trip of their dreams for a fraction of the price.

Interestingly, the low season is not the same in every location. Most spots experience their highest tourism numbers in the summers and around holidays. Likewise, the holidays that cause prices to increase vary from country to country. For instance, domestic travel in the U.S. is at some of its highest prices during the fourth week of November in recognition of Thanksgiving. This is not so in other places that do not observe this American holiday.

Another factor that affects the price of off-season travel is local festivals. These events can draw massive number of visitors from all over the world, allowing hoteliers and restaurateurs to lift their prices with ease. Though most take place in the summer months, festivals can take over a region during various points of the year. A well-known example of this is Rio’s Carnaval, held in February. Holi, celebrated throughout India, is in March. Munich’s Oktoberfest is celebrated in September and October. All of these months are generally considered to be off-season or shoulder-season, but the special events change their status.

Stateside Travel In The Off-Season

Those who wish to stay domestic can find great off-season rates if they travel from mid-January through mid-March. Once Spring Break arrives, prices increase around the country. They tend to stay high through Easter, and then drop again until May. The month of May is often part of the shoulder-season, where prices are lower than the high season, but not as low as off-season travel.

The summer months of June, July, and August are the pricey in the United States, but those costs start to drop in the shoulder season of September and early-October. Mid-October through mid-November is another off-season time. Prices go back up for Thanksgiving and tend to stay elevated until after the New Year.

Off-Season In The Summer

Some families simply cannot get away during the off-season. Many employers count on their workers only taking summer breaks. Most schools are built on the premise of long breaks only occurring from June through August. Luckily, there are places where families can travel for less in the summer months.

The Caribbean is a tourist hotspot all year, but summer, particularly early summer, is hurricane season. Tourists who are willing to brave possible rain and high winds can get a fairly decent discount. Belize and Mexico are both inexpensive and beautiful, with plenty to see and do for couples, singles, or families.

Indo-china is a beautiful and exotic location. The off-season, known in this spot as the green season, presents the possibility of typhoons, instant flooding, and extreme heat. On the other hand, the rains typically only come in the early evening, crowds stay small, and prices are much lower.

Anyone who has ever wanted to visit the land down under can do so in the summer. Australia’s off-season is May through August, which is that region’s winter. July in Australia offers lower temperatures and about six hours of sunshine. Travelers will need a jacket for their trip abroad, but they will be rewarded with a low cost vacation of which others can only dream.


3 Ways to Overcome Debt

After the financial crisis of 2008, the average level of household debt rose to new records.  This was true of debt in many different forms, as outstanding credit card balances, student loans, and problematic mortgage were all seen at their highest levels in recent memory.  Because of this, it has become clear that consumers need to make strict rules to overcome the rising level of debt that is seen across the country and around the world.  Here, we will look at three ways consumers can tackle their debt problems and create a long-term plan to overcome debt before it gets out of control.

Acknowledge the Amount You Owe

One of the first problems consumers face is the failure to truly acknowledge the amount of amount of debt that is owed.  This is especially easy for consumers that have their debts spread out over a number of different sources.  To be sure, it is not an easy task to go through all of your bills and accurately add the balances.  But what seems to be most difficult is coming up with the mental and emotional fortitude to face the problem and accurately acknowledge the amount of debt you owe.  As they say, “the first step toward a solution is admitting you have a problem.”

This is as true in the personal finance realm as it is anywhere else, so do not forget to complete this step before you do anything else.  Taking an accurate assessment of your real debt levels will also enable you to efficiently budget, and determine where your financial resources should be allocated.  This is critical in paying off your total debt.

Reduce Your Interest Rates

If you are having difficulty repaying your debt balances, it is a good idea to call your lending companies and request a lower interest rate.  You might be surprised how often these companies are actually willing to work with you in easing your debt burden.  After all, if you are completely unable to make payments, it is much more likely that you will be forced to declare bankruptcy — and this would mean that the lender will not be getting its money back.  For these reasons, it is always a good idea to try negotiating with your lender to get repayment terms that are more favorable.

Pace Yourself

Last, remember that repaying your debts is going to be a marathon — not a sprint.  It is important to pace yourself and exercise patience.  After all, debt repayment schedules are usually designed to be manageable over an extended period of time.  If you need to make smaller minimum payments, you will need to extend your repayment period until the individual payments are more appropriate for your financial situation.   Mostly, it is critical to focus on the present and make sure that your finances are in order so that you can make your payments as they become due.  Missing payments can become very costly in a short amount of time, so consumers that pace themselves will be much better situated in accomplishing their repayment goals.


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