IMG Wealth Management
Financial Planner, Analyst
Nathan Edwards is a CERTIFIED FINANCIAL PLANNER™ professional and CFA charterholder. He is committed to the idea that establishing clearly defined financial objectives is the keystone of the financial planning process. With these objectives as the foundation for a viable financial plan, Nathan believes that it is possible to elevate one's peace of mind and financial well-being both now and into the future.
IMG Wealth Management was created by professionals from Investment Management Group in 2017 to meet the specific needs of high net-worth individuals and institutions. Nathan and IMG Wealth Management's team of financial planners, investment managers, and support staff have developed a business model tailored to the unique requirements of their core clientele.
Assets Under Management:
If you own 5% or more of the company that is sponsoring the 401k plan, the answer is no. In this case, not only can you no longer make contributions to the plan if you will be over age 70 ½ by the end of the tax year, but you will also be required to begin taking Required Minimum Distributions (RMDs) from your 401k by April 1st of the year following the year in which you achieve age 70 ½.
If you are a less than 5% owner of the company sponsoring the plan, and you still work for the company, you can continue to make a contribution up to the lesser of 100% of your annual compensation from the employer sponsoring the plan or the annual elective deferral contribution limit plus the over age 50 catch-up contribution limit. In this case, you will not need to begin taking RMDs from your 401k until April 1st of the year following your departure from the company sponsoring the plan, even if you are over age 70 ½.
Thankfully, neither the requirement to begin IRA RMDs, nor your receipt of Social Security retirement benefits affect your ability to contribute to your 401k, in and of themselves.
It is theoretically possible, but, without good reason, it might be a bigger headache than it would be worth.
Believe it or not, this question is a popular one. It frequently comes up when someone is trying to generate a tax loss by selling property to family at a substantial discount to market value. Although, this is usually with regard to shares of privately/closely held companies, or other private property.
Unfortunately for those trying to generate the tax loss, the IRS disallows deductions for losses resulting from sales to related taxpayers. The definition for related taxpayers is broad, so you will want to make yourself aware of U.S. Code § 267 before undertaking any such transactions.
Not surprisingly, while tax losses are disallowed if resulting from a related party transaction, tax gains are taxed as any other transaction. This being the case, if you sold your share of stock to someone at a 50% discount to current market value, that purchase price would become their basis. If they immediately turned around and sold their share for the higher fair market value, they would have to pay taxes on the capital gain resulting from the difference between their discounted purchase price and the fair market value sales price.
So, if one still wanted to proceed with the transaction knowing the tax consequences, there would be the next issue of actually completing the transaction. Depending on how the shares are held, the completion of the transaction could require multiple steps.
Another interesting point is that, even though the transaction is occurring outside of a traditional exchange, the transaction would technically still need to take place at “the best price reasonably available.” Selling at a 50% discount for many exchange traded securities would be a far stretch for the best price reasonably available. However, for extremely thinly traded securities, or markets under extreme stress, I suppose it could be conceivable.
Nonetheless, in theory, it is possible to dispose of stock to someone that you know at a discount to current market value. However, such a transaction should certainly be expected to raise the eyebrows of those who notice.
Believe it or not, the “For Dummies” series actually offers two pretty good resources for brand new investors: "Investing For Dummies" and "Stock Investing For Dummies." Both are accessible to new comers, extremely readable, and provide a decent foundation of knowledge. In fact, I even recommend that folks who want to hire a professional to do their investing for them read these books if they have no other base of knowledge, just so they have some common points of reference.
If you burn through those and are yearning for more, I would recommend Benjamin Graham’s "Intelligent Investor." This book is not necessarily advanced, but it is certainly not as readable as the For Dummies books. It spells out some important concepts about the nature of investing, as well as time tested pointers about choosing investments.
If you want to begin to apply your newfound knowledge by utilizing some tools of the trade, most of the online brokerage houses now provide some really neat research functions. This is true even if you’re starting out with a small account size.
Many of the included research tools provided by online brokers now allow retail investors to perform multiple filters to scan through thousands of securities and strain out the few that meet a stated criteria. But first, of course, you have to at least know what you’re filtering for, which is where the previously mentioned resources might come in handy.
I will go ahead and throw in the typical warning, though, that investing in theory and in practice can sometimes be two very different animals, especially at the start. So, if you’re truly just starting out, I would recommend that you take it slow at first, and, if you’re fortunate enough to have some early successes, don’t let it go to your head. One of the best teachers is experience, so it’s valuable to get hands on. However, the cost of tuition for experiential education in investing can sometimes be inordinately high.
Yes, the net return of a fund is the fund’s periodic return minus expenses.
If it were possible to know what every fund’s periodic return would be in advance, then, ideally, everyone would want to invest in the fund that will achieve the highest net return. With this foreknowledge, it might turn out that the fund with the highest net return also has the highest expense ratio. So, if the fund has the highest net return, who cares how high the expense ratio is, right?
The difficulty arises because we don’t know how any fund is going to perform in the future. It is not uncommon to see a previous period’s best performing fund turn into a severe underperformer, on a relative basis, the very next period. This is, in part, why the disclaimer “Past performance is not an indicator of future results” is ever present in the investment world.
While we don’t know what a fund’s performance is going to be from period to period, we do know in advance what its expense ratio will be. When we compare the fixed cost associated with an expense ratio to the variable returns of a fund, we have to decide if the uncertain expectation of higher returns is worth the built-in loss attributed to expenses when evaluating a fund that has a comparatively higher expense ratio.
So, in my opinion, you’re right to believe that cost is not everything. Why would anyone invest in a fund that consistently underperforms its peers and/or benchmark on a net basis just because the expenses are low?
However, depending on the fund(s) in question, there are many good arguments for building portfolios that utilize low cost index funds to achieve the core risk and return exposure desired, and only using more specialized and higher cost funds to fill in the gaps. The thought with this, pure indexing, and other passive investment focused strategies, is that expenses represent a negative return known in advance. The higher the expenses, the greater the drag on investment returns over time.
With so few funds able to consistently outperform their benchmark, for many investors, it makes more sense to accept benchmark-like returns at a lower cost, than to hope for better periodic performance with higher fixed costs known in advance. That being said, although an extremely important factor, cost shouldn’t be the only consideration when evaluating a potential investment.
Back in 1934, Benjamin Graham and David Dodd tried to make the distinction in their book “Security Analysis.” According to the authors at that time, “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
As liberally as the term investor and investment is applied today, this simple, and seemingly accurate enough, definition appears confusing to some. The confusion is understandable.
Across so many modern cultures, the investor, and, in particular, one who has demonstrated an ability to make make a profit, has been mythologized to some extent. At the same time, the speculator is written off as a reckless gambler; or worse, a fool.
Unfortunately, these interpersonal tags are often applied in hindsight to actions that, if evaluated in advance, would have fallen under a simplistic definition of speculation. Those that allocate their assets to a speculative endeavor – according to the Graham and Dodd definition – that results in profit might be considered a shrewd investor, because the proof is in the pudding. However, had the endeavor been of the losing variety, the same shrewd investor may have been labeled a reckless speculator.
The point is that, if a realistic distinction is to be made between investment and speculation, it must be made in advance.
In my, personal, opinion, a black and white distinction cannot always be made between the two. Rather, any activity we undertake with our assets with a reasonable intention of financial gain might be placed on a spectrum ranging from investment to speculation.
In my opinion, the factors that would place an allocation closer to one side than the other would depend upon what can be known about, and what is believed to be known about, the mechanics of how the allocation is expected to generate a return over time, and the level of confidence associated with an expected rate of return over time. The more that can be known about, and is believed to be known about, how the allocation will produce an expected return over a prescribed timeframe, and the higher the degree of confidence associated with an expected rate of return over time, the closer the allocation might be to the investment end of the spectrum. (It seems that, under this definition, a game of chance like roulette would fall closer to the investment end of the spectrum, as much is known about the mechanics of return, and an expected rate of return can be predicted with great confidence over a long enough period of time. With a long enough allocation horizon, it would be appropriate to put roulette closer to the investment end of the spectrum, at least for the house. For the gambler, with an expectation of almost certain loss over a long enough period of time, roulette would violate the “reasonable intention of financial gain” requirement and not fall on the spectrum at all.)
The tricky part here – again, in my opinion – is that it is very easy to fool ourselves into believing that we know more than we do. That is, I believe that many, even among the most highly lauded “investors,” occasionally allocate assets to endeavors that fall closer to the speculative end of the spectrum than they believe at the start.
All of this, of course, presumes some attempt to understand anything about where, when, how, and why assets are allocated. In reality, there are no shortage of entities, natural or otherwise, that allocate assets to endeavors about which little is known other than that it, or something similar, has increased in value in the past, and there is hope that it increases in value in the future. Although many of these entities might consider themselves investors, it would be difficult to place this activity closer to the investment end of the spectrum than to the speculative, even if it ends up being profitable.