EverGuide Financial Group, LLC
Mark R. Painter, CFA is the Founder and President of EverGuide Financial group. He has been an investment manager for over 12 years at both the institutional and retail level having managed public mutual funds and individual client accounts. Additionally he has written for Seeking Alpha and been a speaker on various panels and industry conferences. Mark and his team's mission at EverGuide Financial Group is to help their clients navigate their financial course through cost effective wealth management and Everlasting education.
A graduate of Carnegie Mellon University Tepper School of Business, Mark went on to attain his CFA charter in 2009. Mark worked for Stanley Laman Group, Ltd from 2004 2016.
At Stanley Laman Group, Mark quickly went from analyst to portfolio manager in 2005 and helped create their portfolio management business. Not only was Mark responsible for portfolio management but also had large responsibilities in working with clients to understand their needs and financial goals. In 2014 Mark became the lead portfolio manager of a publicly listed mutual fund (American Real Estate Income Fund).
BS, Business Administration, Carnegie Mellon University
Assets Under Management:
What a great question and one that crosses peoples minds a lot. I will say that you are thinking a little differently in that most people want to go to cash AFTER the market has sold off.
Each investor is different and without knowing your age, time horizon, risk profile, etc it is difficult to give a precise recommendation, however I will answer in the broadest sense and hope it helps. I tell clients to look at their accounts with a certain objective in mind such as capital appreciation, capital preservation, or current income. Usually for a 401k, the objective is capital apprecaition in order to maximize account value for when you are ready to retire, at which time your objective will change towards income. Additionally, because of the long term nature of the account (taxes +10% penalty for early withdrawal) combined with contributions that are the best form of dollar cost averaging, a 401k should be used as a more passive investment. Trying to time the market and make binary (you either win or lose) active bets will most likely cause your portfolio to suffer in the long run.
With that being said, it is a great idea to periodically rebalance the portfolio. Depending on what is offered in your plan, there will inevitably be funds that have done extremely well and others that have not. By selling some of the strong performing funds and buying some of the weaker performing funds you can increase the expected return of your portfolio over the long term. I stress "long term" because it may take awhile to realize the benefit of rebalancing as momentum tends to stay in asset classes for longer than most people expect.
Given your current views, in the process of the rebalancing you can assess what would have an outsized exposure to a downturn in both stocks and bonds, such as high yield bonds, corporate bonds, and growth stocks and reduce your exposure there. As an example, even though a high yield bond is fixed income, if we were to go into a bear market, this asset class will most likely behave more like a stock than a bond and thus defeats the main goal of diversification. Additionally, there is nothing wrong with using cash as part of the allocation in your rebalance, it just should not be an all or none proposal like the question states. After all, if the fed continues to raise interest rates 3-5 times over the next year, that cash can become more valuable when other fixed income securities may not.
Best Wishes and happy investing!
The short answer to your question is that a revocable trust would be filed with the "grantor" which in this case would be your father. Any income generated by the trust including capital gains and dividends should be reported on your father's return.
As for the $7,000 to each of the children and grand-children, this is below the annual exclusion limit of $14,000 so you do not need to file a separate gift tax return.
I hope this helps answer your questions more generally, but should be reviewed by an advisor or attorney to go through the finer details of the estate plan.
Congratulations on wanting to invest money. This is a good first step. There are many things to consider before investing which include how long you will be investing, how much risk you are willing to take, taxes, and many other factors that relate to your personal goals.
The short answer to your question is that one year is too short of a time period to really consider investing. Anything can happen in one year and it is most likely not worth taking the risk and instead finding something very safe such as a CD or Treasury Bond that earns some return but also has a high degree of probability that you will get your money back in that year.
Investing should be looked at as a long term solution and the investments should be made to meet your objectives whether that be to provide long term growth or current income.
The longer time you are investing the more powerful it becomes because of compounding. Compounding has a huge effect and is important to illustrate for new investors. The example I like to use is what would your return be if you made 10% a year for 10 years? New investors would quickly respond 10 X 10 = 100, and would answer incorrectly with a 100% return. The reason this is wrong is because each year you would earn 10% on a larger sum of money. This is what makes compounding so powerful. The real answer is illustrated below with a $100 initial investment that earns 10% a year for 10 years. Notice how the longer you are invested the more powerful that yearly return becomes to your initial investment.
While this example assumes 10% a year return, it is done for illustrative purposes and in reality those returns will vary much more significantly and there will be down years mixed in as well. Because of those fluctuations, in order to really experience the benefits of compounding you need to invest for longer periods of time.
This is a good question and a payout ratio is an excellent way to assess the health of a company and its dividend.
It is important to take this analysis a little bit deeper. While USA companies usually pay out a consistent dividend per share such as .25 a quarter, many international companies will use a payout ratio such as 50% that causes dividends to fluctuate more with the business.
In the USA, because of the importance of maintaining the dividend, companies will only cut as a last resort and will try to temporarily payout more than what they make. They can do this from cash on the balance sheet or through lines of credit.
Additionally, because a dividend payout ratio is calculated on Net Income, there may be significant non-cash charges that can effect this ratio such as depreciation and amortization(this is more common with REITS). You will also want to look at one time events that caused this ratio to spike such as a natural disaster. Looking for these potential explanations often reveals more about the business and prospects moving forward.
In the end, while a dividend payout ratio is a great place to start, it is good to dig a little deeper for more information as to why a payout ratio is so high. In any case, no company can continue to maintain its dividend with a payout greater than 100% for any prolonged period of time.
Congratulations on the investment gains and a good question when it comes to putting money aside for taxes.
Opening up several savings accounts to be FDIC insured can be a bit cumbersome especially if the money is going to be used to pay taxes in a relatively short period of time.
Another option would be to open a brokerage account and purchase CD's under the FDIC limit of 250k from different banks that mature around the time you will pay your taxes. Because a CD is less flexible than a savings account, they typically offer a higher interest rate. Given that your payment amount and timing are fairly certain, a CD may be a better option. Additionally, because you can own multiple CD's in one account it saves some paperwork of having to open different accounts.