Revere Asset Management
President & CIO
Daniel Stewart is President & CIO of Revere Asset Management and has been providing financial services and portfolio management for over twenty years. Revere Asset is a Fee Based RIA which Always Acts as a Fiduciary in the Best Interest of its Clients. Prior to joining Revere Asset Management, Dan advised on investment portfolios exceeding $200M. He is also well versed in comprehensive planning including corporate, individual, and estate planning.
Dan joined the NorAm Capital team in 2010 to create and manage their Private Wealth Management firm. This eventually led Dan to buy the business and rename it Revere Asset Management. He graduated from The University of Texas at San Antonio with concentrations in Finance and Accounting. Dan has passed the CPA Examination on the first attempt and subsequently earned his CFA® Charter (Chartered Financial Analyst).
Dan, a native of San Antonio, Texas, is married with 3 children. Dan played NCAA tennis on a full scholarship at Vanderbilt University. He played professional tennis on the United States and European circuit and was then the Head Tennis Professional at both the Retama Polo & Tennis Club and Thousand Oaks Indoor/Outdoor Racquet Club, in San Antonio, Texas.
Chartered Financial Analyst (CFA®), BBA in Accounting
Assets Under Management:
Fee Based Only - Fiduciary with No Conflicts of Interest
#Yes Primarily Term
No information presented constitutes a recommendation by Revere Asset Management, to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities by Revere Asset Management. Revere Asset Management does not offer or provide any opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.
In the current environment, the time to sell a bond was a few months ago as interest rates are now rising. The long term trend of dropping interest rates, and therefore bull market in bonds, may be over. This is if you are active and looking for capital gains and best price. If you are happy with the 6% and not worried about inflation, especially if you have a specific use for the funds to cover, then you may consider holding.
Bonds are usually denominated in $1,000 increments known as face value or par. This is the price you receive per bond when they mature. Bond prices move inversely with interest rates as to set them to the "effective" interest rates in the economy. So, when a company issues a bond, they attempt to set the stated or coupon rate on the bond at the current market, which is know as the "effective" rate in the economy for the same risk level of that particular bond - investment grade, junk, etc. By the time they get the bond issued, interest rates may have moved from that rate. For example, if the stated rate (coupon) on a bond is 6%, and the going rate in the economy (effective) is 4%, isn't your bond worth more than "par" or $1,000/bond. Thus, it will sell at a premium to the seller, but effectively sets the yield to maturity (YTM) at 4% for the buyer. If market rates are 8%, then your 6% bond will sell at a discount, thus setting the YTM for the buyer at the current market rate of 8% because he paid less than face value (par) for the bond.
The old joke in the industry is what is the difference between a new 5%, 10 year bond and a 5%, 20 year bond with 10 years left to maturity? The answer is nothing, assuming the same quality. This is why existing bonds must be sold at a discount or premium to par as stated above to compete with newly issued bonds. It is the pricing mechanism to set bonds to current conditions.
The two things that adversely affect bond prices are rising interest rates and inflation. Rising rates makes your bonds less competitive and inflation erodes purchasing power. Either will drive bond prices down. And if we have high inflation, bond prices can easily go down by double digits. So, the risk profile of bonds, like stocks, changes over time. You have been told that it is all about your risk tolerance, but I humbly disagree. I believe it is more about the risk in the asset or sector itself which is more important. People's risk tolerance and behavior changes over time. When the market sells off, they become scared and defensive, and when the market is rallying, they become more aggressive. I am not saying this is a logical behavior, but it just is.
The point is that if you are trying to offset a specific liability for your zero coupon bond, known as asset liability matching, then that is fine. But if you are tying to maximize your wealth by not holding assets that are more risky at times, then the risk in bonds is currently elevated. Longer term bonds are more sensitive to interest rates because you have more uncertainty and longer to hold. Zero coupon bonds are even more sensitive because you don't get any interest payments, or coupons, to reinvest at higher rates and offset.
I answered your question a little technical, but you said you were trying to learn. And I used bond terminology so you could research. Bonds can be as complicated as stocks in certain environments. We may be entering one of those periods now. Just an FYI, long term treasury bonds were long over -30% during the late 70s when we had high inflation. I am not trying to scare you our imply this is imminent, but bonds can and do lose lots of money under the right circumstances.
I do not believe the Fed can raise rates with any seriousness without crushing the economy, so I think they will do one or two small token moves (my opinion). But inflation is even more insidious for bonds, so you need to pay careful attention for signs of inflation.
Sorry this was so long winded, but hopefully it will give you something to think about & research. Happy Holidays, Dan Stewart CFA®
Assuming it is a Defined Benefit Plan (DBA or Pension Plan), you can certainly "roll" into an IRA. In fact, based upon the information you gave about needing some of the money, you will almost certainly want to do that. This is because with company retirement plans like DBAs, 401(k)s, etc.. there is a mandatory 20% withholding taken off the top and sent to the government, whether you owe 20% tax or not. It will simply be netted against your tax return and you may be giving the IRS an interest free loan. You see, they penalize you for not paying enough, but they don't pay you interest when you overpay.
With an IRA distribution, you set the percentage amount withheld, whether it be 5%, 10% or even 0%. So, you can match more closely to what you think your tax liability will be. Just generalizing and without knowing your personal situation, I would take 1/2 the IRA distribution before the end of this year and the other 1/2 on January 2nd next year. This way you spread the tax liability over 2 years and it may not push you up into a higher tax bracket. This is to stimulate your thinking about the planning process.
Lastly, you need to get moving quickly on the IRA rollover from the annuity. Insurance companies are notorious for holding the money and slowing down the process with detailed, minutiae paperwork that needs to be Notarized etc. You may need some help on this to get it done and transferred into the IRA before year end. Then process a distribution request so the new brokerage firm (hopefully discount brokerage) distributes the 1st half by year end because they get bottlenecked with distribution requests in mid December before Christmas. Best of luck!
Roth distributions are tax free and not counted as income. You stated above that your were going to "withdraw funds from my 401(k) & IRA." Are those Roth 401(k) & Roth IRA? Because if you are talking about "converting" your before tax 401(k) and Regular/Rollover IRA into a Roth, then that whole conversion is taxable.
I would think long and hard before doing that. Many advisors do like that approach, but usually the math doesn't play out due to the loss of compounding the portion you paid in tax. I would almost always take a current tax deferral or deductions than pay now in order for a future tax benefit. You never know what the rules may be.
Best of luck and Happy Holidays, Dan Stewart CFA®
Whenever there is a major change - company structure, merger, etc.. there is a "blackout period." Even simply switching a Third Party Administrator (TPA), which is the plan's "accountant," can trigger a blackout period. Under ERISA guidelines, this can take up to 90 days (max), but this should have been disclosed to you before the blackout period so you could make any necessary changes to your allocations of funds.
It is probably nothing to be alarmed about and is just the switching over to a new provider, TPA, or due to the merger itself. But it is definitely worth the phone call to HR. They should be able to give you answers, especially on your own withholdings which are always 100% vested and yours. Remember, this should have been disclosed before any Blackout Period.
I would say this though, you may have an opportunity to rollout your existing balances to an IRA Rollover where you have complete control and are not limited to their plan's investment choices, usually 12 or less mutual funds. Whenever there is a major change in the plan, which this sounds like this definitely qualifies, you must be given that option because it changes your original "deal" and you may not want to contribute your already accumulated assets going forward.
This doesn't preclude you from contributing and making new contributions to the plan, it just allows you to rollout your existing balances into an IRA Rollover. It will almost certainly provide you with more flexibility. In fact, as people change jobs, they should normally roll each old balance into their IRA Rollover and begin fresh with each new 401(k). This way, they will accumulate a nice rollover with unlimited options along with a 401(k). Hope this helps.
It's never to early to begin saving, whether it be for college, retirement, or otherwise. If you are talking about for your kids, though, I am not a big fan of 529 Plans. This is because they have limited investment choices and you can only make changes once per year. I would rather open an individual or joint (with spouse) taxable investment account, pay the tax, and have control of my destiny.
Educational IRAs are very limited in how much you can put in each year, but does leave you with more choices and flexibility. Uniform Trust to Minors Act (UTMAs) & Uniform Gift to Minors Act (UGMAs) are not as common anymore for some very good reason. You are gifting, or giving away control, of the assets. So while you control minors, once they reach the "age of majority," either 18 or more often 21, they can raid the account and buy a little Red Corvette (or worse) and there is nothing you can do to stop them. There are actually seniors in college teaching classmates how to raid their accounts.
For this reason, I usually prefer counseling my clients to have their own investment account that they can own and control. When the time comes, write a check. This is not what you will hear from the mainstream investment community. I want to think my child will be very responsible (and have been blessed as they are), but a lot of things can happen.
That said, these are tools which can be used for other planning. For instance, wealthy grandparents could use a 529 Plan to gift $50K into the plan and remove from the estate. So, the lack of investment direction and control is offset by a high estate tax (55%) once you are over approximately $11M joint & $5 1/2M individual. If you have complicated issues, seek advice. But for someone starting out early, I usually advise to save early in an account that you can keep and have control. Hope this helps.