Medicus Wealth Planning
Kevin enjoys helping clients from all stages in life with sound financial planning. Kevin has especially found a niche in advising small business owners who’d like to create or improve upon their existing company retirement plan.
Kevin got his start in the financial planning industry by going to work for one of the largest discount brokerage and mutual fund companies in the world, Fidelity Investments. While at Fidelity, Kevin held his Series 7 and 63 Licenses which allowed him to work as a trader, completing transactions in stocks, mutual funds, and options. After being promoted to a department that focused on helping clients with their company retirement plans, Kevin found what he had a passion for, helping small business owners and their employees successfully prepare for retirement.
Kevin left Fidelity to come work with David Luke as a partner in Medicus Wealth Planning. Having the opportunity to work with clients on a fee-only basis allows Kevin to give objective and sound financial planning advice that is never tainted by a hidden agenda.
Kevin graduated from Utah Valley University with a degree in Personal Financial Planning. Utah Valley University’s Financial Planning Program has been recognized on numerous occasions as a top 10 Financial Planning Program in the country.
Shortly after graduating with a degree in Personal Financial Planning, Kevin became a Certified Financial Planner™ (CFP®).
Kevin lives in Riverton, Utah with his wife Lauren, and their two children. Kevin spends much of his free time with his family outdoors, playing sports, and watching Jazz games. Kevin and Lauren enjoy living close to both of their families and spending time with them.
Personal Financial Planning, Utah Valley University
Assets Under Management:
Let's first talk about how mutual funds and ETFs are the same and how they are different, and then we can get into the pros and cons of each.
The idea behind both mutual funds and ETFs are that they provide instant diversification regardless of how much money you have to invest. When you invest in a mutual fund or ETF, you are investing in a basket of stocks and/or bonds that represent a certain market such as large US companies, small US companies, international companies, etc. There are mutual funds and ETFs that cover basically every type of market you could think of.
The two biggest differences between mutual funds and ETFs are how they are traded, valued, and what their investment philosophy is. Mutual funds are traded only one time per day at market close. At the end of market close the mutual fund takes all the sell and buy orders that were placed and they calculate the NAV (net asset value) which is essentially the price or value per one share of the mutual fund. This is calculated by simply taking all the assets of the fund (securities held) and dividing it by the number of shares outstanding. ETFs are traded throughout the day, just like stocks, and the price you pay for an ETF could and most likely will be different than the NAV of the ETV. This price of the ETF like a stock is determined by demand and the future outlook of the securities the ETF owns. You can buy and sell an ETF at any time while the market is open.
Although its important to understand how mutual funds and ETFs are valued and traded, it is more important to understand the investment philosophy each vehicle represents.
Generally, mutual funds are actively-managed investments (but not in all cases). Actively-managed investments mean you pay a premium to have a mutual fund manager actively picking the stocks and/or bonds in your mutual fund. heir objective is to outperform a certain benchmark. For example, an actively managed mutual fund that invests in large US companies would most likely benchmark themselves against the S&P 500. The objective of this mutual fund would be to try and outperform the S&P 500 for any given time period. The managers do this by employing fundamental analysis and other techniques.
Generally, ETFs are passively-managed investments. Instead of trying to outperform a benchmark, an ETF simply tries to mirror the return of the benchmark. They do this by simply holding the exact same securities that their underlying benchmark holds. An ETF that represents large US companies would simply hold all 500 stocks of the S&P 500. Since there is no need for a manager to pick and choose the stocks, the expense to invest in an ETF is very low compared to mutual funds.
Now to the pros and cons:
The pros and cons of each investment are very subjective and mostly depend on your take of the stock market. If you believe that the stock market is inefficient and that a mutual fund manager can consistently outperform its benchmark then you'd invest in actively managed mutual funds. If you believe the market is efficient then you would invest in low cost ETFs.
In addition to the investment philosophies, mutual funds are generally less tax-efficient than ETFs. Since managers are actively trying to find the best stock picks, mutual funds usually have higher turnover and, therefore, more capital gains. Since ETFs simply hold the same stocks that are represented in the benchmark, there is less turnover and less capital gains generated.
Mutual Fund Pros
- The chance to outperform the stock market
Mutual Fund Cons
- Expense to invest is generally higher
- Shares only trade once a day
- Less tax-efficient
- Expense to invest is generally lower
- Your return will match the ETFs benchmark return (could be considered a con)
- Shares trade throughout the day
- More tax-efficient
- No chance of outperforming the respective benchmark
You can either report the bond interest as you receive it, or report it once you cash in the bond. If you haven't been reporting bond interest as you receive it , then you will need to report it in the year you cash in the bond.
The answer to this depends heavily on your current situation.
If your strategy is to use the dividends to buy stocks when the market dips (so you can buy low), I think this is a great decision. Just make sure you have a plan such as investing when the market drops 10% or 20% and stick to your decision. Inevitably, when the market starts dropping, people get scared and may abandon their plan. Whatever your plan is, stick to it and don't try and wait for a market bottom. Set your parameters and stick to them.
If you're thinking about holding on to the dividends to save up a cash account, that could also be a good decision. You could use those dividends to build up an emergency savings account you hold in cash and only use when needed (loss of a job, decrease in income, etc.).
If overall, you like the stocks you own and plan on holding them for the long haul, there is nothing wrong with automatically investing the dividends.
The life insurance proceeds are completely tax-free. However, now that he has deposited the proceeds in a brokerage account, your father will be taxed on interest, dividends, and capital gains each year. However, dividends and capital gains are taxed at preferential rates. If your father is in the 10% - 15% ordinary income tax bracket (and it sounds like he is), then any qualified dividends and capital gains aren't taxed at all! With a $10,000 investment, he'll be generating a little bit of investment income (depending on how it is invested), but it won't trigger a large tax liability by any means.
With retirement accounts, you shouldn't have to worry about capital gains tax. When you take withdrawals from your retirement accounts, they are taxed as ordinary income regardless of the capital gain/loss achieved.
Your Social Security shouldn't be reduced because of the sale of your rental property. It may be taxed at a higher rate, but the gross amount you receive shouldn't change.
It sounds like you have stable income between your military, government, and Social Security payments. If you're worried about outliving your retirement capital, consider keeping the profit from the sale of your rental property to supplement your other sources of income. If there is anything left over, your children will end up inheriting it.