Nov. 25, 2009: Open Letter

Tax Tips for Year-End, Rebalancing, Black Friday

Eric Linser, CFA | Nov. 25, 2009

"When Black Friday comes I'll collect everything I'm owed and before my friends find out, I'll be on the road." - Black Friday by Steely Dan

Funny how the day after Thanksgiving is called Black Friday, yet Steely Dan was singing about the '87 crash. Well for retailers, it's make or break time. It's an important time for consumers and investors alike. This year the day comes with added importance. As the US economy heads towards the finish line on a year most companies hope to soon forget, many sectors are looking for a boost to their bottom lines. Target's CEO summed it up, saying that "the fourth quarter will be decided by the two days after Thanksgiving and the two days before Christmas." Consumer spending accounts for nearly 70% of the economy and many analysts are pinning the recovery hopes on a busy shopping season. We'll see if Black Friday begins with a bang or a clunk.

2010 is a watershed year, in many regards, and taxes will be front and center. Before I wind you up, I want to be clear that increasing tax rates WON'T actually kick in until 2011, whether it be the 39.6% top tax rate or the 20% long-term gains rate. There is some confusion about all of this. Once we know what's going to happen with taxes, 2010 is a really very big year to be making some decisions on whether you should be accelerating your income or deferring income. Then there is a whole new group of high-income earners who are allowed to do Roth IRA conversions, which we'll discuss in January.

As we close in on the end of the year, and on holiday shopping season, it's more important than ever to make sure you're making smart decisions about your finances. Don't get caught up in end-of-year festivities without first taking advantage of these tax tips. (For a quick read, click Year-End Tax Tips for 2009).

For a more in-depth read on the year-end "to do" list, we look at family financial planning issues where December 31^st is the drop-dead date for some very important items. Read our Checklist for Year-End Reviews: Issues and Opportunities.

Other than taxes and family financial planning matters to address at year-end, the other important item is your investment portfolio. With the stock market in an extended recovery, now is the time to rebalance, realigning your portfolio to match your investment strategy. In fact, many well-respected investors with sound track records believe US markets have become significantly overvalued, with only a matter of time before a downward correction erases some of the gains posted over the past several months. Rebalancing is proven to show it can reduce risk and improve returns. Read Year-End Strategies: Rebalancing Your Portfolio.

While the stock market has staged an impressive comeback, there is still a strong case for doing at least some selling this year, even if it's at a loss. This is especially true with the year-end tax-selling season upon us, and the time to act coming to a close. It's human nature to want to hold out until you make back everything you lost in last year's crash. Ask yourself whether you'd buy these shares "anew" at their current price. At the very least, make sure the reasons for liking a stock are still there. If you can't bring yourself to pull the plug on all these investments at once, plan to gradually pull out of the position. Unloading, say, a fourth of your position every quarter removes the fear of missing out on a rebound.

One can become distracted by other matters at this time of year "wrapping up" but you can prioritize and keep on task, and we can help.

We've been busy lately (in a good way), and have posted lots of new articles. One discussion is on the "carry trade" and how the US dollar's weakness is driving speculation throughout the world. Over the long haul, a falling currency is not really such a good thing. But when you want to revive the economy by exporting more goods and want to pay back creditors in cheaper dollars, then not so bad to have a weak currency for a while. But, when everybody crowds one side of a boat...read US Dollar Carry Trade: Dollar Down, Everything Else Up. Pay extra close attention to the US dollar if you have any interest in preserving your gains and portfolio going forward.

Adding to investment speculation is that you can't earn a decent return on safe, short-term investments such as CDs and Treasury bills. An odd thing happened last week, which was that the yield on some US Treasury bills turned negative! That is, investors were paying the government money to hold their debt; give them a buck, get 99.9 cents back. (Huh?) Well, there's an explanation. Read Negative/Zero Yields for Short-Term Treasuries.

We're bargain hunting ourselves, for stocks that is. As investors become more and more anxious about the fundamental support for US stock prices, many have begun looking overseas for investments that seem less likely to be inflated. We've been strong proponents for more international exposure for clients' portfolios. Our partners at FocusPoint Solutions give a list of reasons to get money offshore. Read Offshoring: Increasing International Exposure.

There's much to give thanks for; on the business front, I am optimistic about the core trends in our thematic investment approach, making the "right"calls, and our performance going forward. I am excited with our progress as a young, burgeoning company in a still challenging environment.

As it is time to give thanks with family and friends, I want to especially thank those who have supported us and are contributing to our success. And for those on the fence, take a hard look; I know you'll be happy you did. We want you to be wealthier, not "broker."

I'll be taking a well-deserved break for a few days, taking my son on his first Amtrak Capitol Corridor ride to his grandparents' house.

I'll be back in the office on Monday, and Tuesday, December 1^st, is the annual Christmas tree lighting event at my office. I'm having an open house, so feel free to stop by. Let me know if you plan to do so. The event will take place from 4:30-5:30 on the plaza in front of 555 California (@ Kearny) and will feature live music and holiday entertainment.

Happy Thanksgiving!

Eric J. Linser, CFA

If you find yourself in a food stupor after Thanksgiving dinner and have extra time on the couch, we've included some interesting articles for you to peruse. We start by looking at the ways our emotions derail our best intentions and how to make more intelligent financial decisions on your 401(k). We also have an economist's expert advice on how to keep the economy from a repeat meltdown.

Dumbest Things You Do With Your Money Even smart people make financial moves that are downright illogical, driven by emotion and superstition. Here are some of the biggest blunders we all make, plus tips on how to keep cool.

New Retirement Risk: You Get Dumber After 53 A new Brookings Papers study took a look at 10 different financial moves to discover just when our financial cognitive skills start to slide.

Dumbest 401(k) Mistakes to Avoid Many investors undermine their savings plans without even knowing it. We've compiled a list of the most common mistakes, and explained how to avoid them.

Boost Your Retirement Income A special type of investment called "master limited partnerships" offers retirees ways to boost income opportunities. Just make sure you can handle the tax implications.

Prevent the Next Financial Crisis The current financial meltdown was caused by excess liquidity, incentive problems in the mortgage market, and a lack of regulation. Here are the changes we need to avoid a repeat performance.

Call us at 415-568-2150 or drop us an email with the best time and number to reach you and I'll make sure you get the one-on-one guidance you need in managing your wealth. We'll answer your questions and if you're ready, we'll get started -- it's that simple. I look forward to hearing from you!

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