ALDO's BLOG

April 10, 2017

Combining Your Finances When You Marry

How separate (or intertwined) should your financial lives be?

Provided by Aldo Waker, AAMS

 

Some spouses share everything with each other – including the smallest details of their personal finances. Other spouses decide to keep some individual financial decisions and details to themselves, and their relationship is just fine.   

 

Just as a marriage requires understanding, respect, and compromise, so does the financial life of a married couple. If you are marrying soon or have just married, you may be surprised (and encouraged) by the way your individual finances may and may not need to change.

 

If you are like most single people, you have two or three bank accounts. Besides your savings account and your checking account, you may also have a “dream account” where you park your travel money or your future down payment on a home. You can retain all three after you marry, of course – but when it comes to your expenses, you have a fundamental decision to make.

 

After you marry, the two of you may also find it best to have three checking accounts. Yours, mine, and ours? Essentially. A joint account can be set up specifically for household expenses, with each spouse retaining an individual checking account. Of course, each spouse might also maintain an individual savings account.

 

Do you want to have a joint bank account? The optimal move is to create it as soon as you marry. Some newlyweds find they need a joint bank account only after some financial trial-and-error; they would have been better off starting out married life with one.  

  

If you only have individual checking accounts, that forces some decisions. Who pays what bill? Should one of you pay most of the bills? If you have a shared dream (like buying a home), how will you each save for it? How will you finance or pay for major purchases?

 

It is certainly possible to answer these money questions without going out and creating a joint account. Some marrying couples never create one – they already have a bunch of accounts, so why add another? There can be a downside, though, to not wedding your finances together in some fashion.

 

Privacy is good, but secrecy can be an issue. Over time, that is what plagues some married couples. Even when one spouse’s savings or investments are individually held, effects from that individual’s finances may spill into the whole of the household finances. A spouse who has poor borrowing or spending habits, an addiction, a sudden major debt issue, or an entirely secret bank account may be positioning himself or herself for a money argument. The financial impact of these matters may affect both spouses, not just one.

 

A recent Ameriprise Financial survey of 1,500 couples found that nearly a third of them argued about money matters at least once per month. About 70% of the respondents in that survey reported making purchases without informing their spouse or partner. Seventy-three percent said that they made money decisions differently than their better half did. In households like these, a little communication could help put both spouses or partners on the same page.1 

 

So above all, talk. Talk to each other about how you want to handle the bills and other recurring expenses. Discuss how you want to save for a dream. Chat about the way you want to invest and the amount of risk and debt you think you can tolerate. Combine your finances to the degree you see fit, while keeping the lines of communication ever open.

 

Aldo Waker may be reached at (512) 771-7557 or awaker@upstreamip.com.

 www.wakerfinancial.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Aldo Waker Disclosure

     

Citations.

1 - bloomberg.com/news/features/2016-09-29/couples-can-spy-on-each-other-s-spending-with-this-new-bank-account [9/29/16]

 

December 12, 2016

Mistakes Families Make with 529 Plans

5 common errors to avoid + 2 big factors to consider.

Provided by Aldo Waker

Most families that start 529 college savings plans have done their “homework” about these programs. Missteps are made, though, often with the distribution of 529 plan assets. Here are some of the major gaffes, and the major factors anyone should think about before enrolling.

Assuming a university will withdraw 529 plan assets for you. When the time comes, you have to tell the 529 plan that you need the money and specify the payee. Typically, a 529 program offers you either a check written out to you, to your student, or a payment made directly from the 529 plan to the university. There are two big reasons why a check made payable to the student may be the best option.

*A  529 plan distribution triggers a Form 1099-Q. You most likely want your student’s name and Social Security number on that form, not yours. If your student’s name is on the 1099-Q and your student has qualifying higher education expenses (QHEE) equaling or exceeding the gross distribution figure for that tax year listed on the form, that whole 529 plan withdrawal becomes tax-free and the distribution from the 529 doesn’t show up on the student's Form 1040. If your name is on the 1099-Q,  the distribution doesn’t show up on your 1040. Even if your student’s QHEE equals or exceeds the magic number on the 1099-Q for the tax year, an omission may trigger an IRS notice to you, and you will have to defend the exclusion.1

*Let’s say you accidentally overestimate your student’s qualified education expenses, or maybe parents and grandparents make withdrawals without each other’s knowledge. In this event, the earnings portion of the distribution is partly or fully taxable. If the distribution is paid out to you, then the earnings are taxed at your federal tax rate. If it is made payable to your student, then the earnings are taxed at his or her federal tax rate, which barring the “kiddie tax” is presumably just 10-15%.1

Having a payment made directly the school can lead to a second common mistake.

Inadvertently reducing a student’s financial aid potential. When a university takes a direct payment from a 529 plan, its financial aid office may make a dollar-for-dollar adjustment to the need-based aid a student receives. Often, it is viewed the same as scholarship money.1

Since the IRS bars you from using multiple education tax benefits to pay for the same education expenses, using tax-deferred 529 plan earnings to pay for the first semester of college may disqualify your student for an American Opportunity Credit. You should read up on the IRS income restrictions on education credits or consult a tax professional. Paying the first few thousand dollars in freshman year expenses with funds outside the plan may allow your student to retain eligibility.2

Mistiming the distributions. It can take up to two weeks to arrange and carry out a 529 plan distribution; telling a financial aid office that you are using 529 funds to pay tuition just a few days before a tuition deadline is cutting it close.3

Some families withdraw 529 monies during freshman year, which can conflict with federal tax returns. If a tuition payment is due in January, withdrawing it in December will create an incongruity between total withdrawals and expenses. The same will apply if a withdrawal is made in January, but tuition was due in December.3

Botching the tax break offered to you on the distribution. To get a tax-free qualified withdrawal from a 529 plan, the withdrawn funds have to be used for qualified, college-related expenses. If the distribution isn’t qualified, it will be considered fully taxable, and you may be hit with a 10% federal penalty plus state and local income taxes. If you withdraw more plan assets than necessary, any excess distribution is also nonqualified. Calculating and withdrawing the "net" qualifying expenses of your student’s college education could help you avoid this last problem, or alternately, you could report the excess 529 funds on the student's 1040.3,4,5

Ceasing 529 contributions once a student enters college. You can keep putting money into a 529 plan throughout your student’s college years, with the opportunity for additional tax-deferred growth of those savings.2

Finally, two other factors are worth noting. These would be a 529 plan’s expenses and deductions.

Tax deductions represent a key reason why families choose in-state 529 plans. Most states that levy income tax offer 529 programs with deductions or credits for taxpayers. It varies per state. In Michigan, a married couple can deduct the first $10,000 of 529 contributions annually, which leads to a state tax savings of up to $425. Some other states offer no deductions.6

Some 529 plans have different advantages. If your home state’s 529 plan expense ratio exceeds 1%, consider another state’s plan. (You can find objective rankings of 529 plan expenses online.)

Lastly, compare the expenses and fund choices offered by a 529 plan to those of other funds or investment vehicles found outside the 529 wrapper.

Make no mistake, 529 plans offer great potential advantages for households striving to meet future college costs. Just remember to read the fine print, especially as your student’s freshman year draws closer.

Aldo Waker may be reached at (512) 771-7557 or awaker@upstreamip.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - www.bankrate.com/finance/college-finance/3-ways-to-take-a-529-plan-distribution.aspx [10/5/09]

2 - www.usnews.com/education/best-colleges/paying-for-college/articles/2012/08/01/4-costly-mistakes-parents-make-when-saving-for-college [8/1/12]

3 - www.savingforcollege.com/articles/20101001-5-blunders-by-first-time-529-plan-spenders [10/01/10]

4 - www.foxbusiness.com/personal-finance/2011/11/14/dont-make-your-52-plan-distribution-taxing/ [11/14/11]

5 - www.529.com/content/benefits.html [3/28/13]

6 - www.forbes.com/sites/baldwin/2013/03/27/the-two-step-guide-to-529s/ [3/27/13]

November 22, 2016

The Intriguing Post-Election Rally  

Why did some sectors rise more than others?  
 
Provided by Aldo Waker, AIF, AAMS  
 
Wall Street likes certainty. When startling financial, political, or societal events occur, volatility usually follows, and the major indices may fall.   In late October, the Dow Jones Industrial Average went on a multi-day losing streak as Donald Trump caught up to Hillary Clinton in the polls tracking the presidential race. Wall Street had been anticipating a Clinton victory; suddenly, that looked less certain. The Dow gradually sank below 18,000. When Trump won, however, the Dow did not drop further. It rallied for seven days and notched four record closes.1,2   
 
What sparked the Dow’s rally? One, a new presumption of massive federal spending on infrastructure and defense. In August, Trump pledged he would “at least double” Clinton’s proposed federal stimulus if elected, which would mean committing more than $500 billion to repair the nation’s highways, bridges, and ports. He has also talked of greater military spending. Many, if not all, of the 30 companies making up the Dow could play significant roles in such efforts. Two, a Trump presidency is perceived as pro-business, with the potential for decreased regulation, renegotiated trade agreements, and tax cuts.2,3  
 
The small caps also soared after Trump’s win. The Russell 2000 advanced 9% during November 9-17, leading some investors to wonder what the small caps had in common with the record-setting blue chips. The quick answer is that these small-cap firms have greater exposure to the U.S. economy than they do to foreign economies. Bulls believe that these firms will be particularly well positioned if infrastructure spending increases.4  
 
Why did the S&P 500& Nasdaq Composite lag the Dow & the Russell? The S&P rose 1.8% from November 9-17. This returned the index to the level at which it had been for most of the third quarter.4,5  
 
A closer look at the S&P’s recent performance reveals a striking gap between its industry groups. Its financial sector climbed 10% in the eight days after Trump’s victory, aided by hopes for friendlier bank regulation in the new administration. By November 15, its YTD performance was 17% better than that of the S&P’s worst-performing sector, utilities. This degree of difference had not been seen in the index since 2009. Basically, a major rotation happened, taking invested assets out of certain sectors and into other sectors presumed to benefit from the policies of a Trump presidency.2,6  
 
Hearing about the Dow’s surge, some investors assumed their portfolios would see large, abrupt gains – but in any sector rotation, money flows away from some industry groups toward others. In the three days after Trump’s victory, the Dow had gained 2.81%; the S&P, 1.16%; and the Nasdaq, 0.84%. While the Dow is only comprised of 30 companies, the S&P and the Nasdaq are much broader benchmarks, exponentially larger in their scope. Both the Nasdaq and the S&P contain many tech companies – and, broadly speaking, Silicon Valley was not high on Trump.7   
 
Investors scratching their heads at recent portfolio performance would also do well to remember that large caps are just one of six asset classes. The gains for U.S. equities stood out globally after the election; there were losses in emerging and developed markets abroad, and losses in the debt markets. As assets in many portfolios are allocated across various asset classes to try and manage risk, this helps to explain why many retail investors saw only small gains or no gains at all immediately after November 8. They were not invested merely in the member firms of the Dow Jones Industrial Average.7   
 
Will this rally continue? It’s difficult to say. As you know, history provides information of the past, and no assurance of future returns. While it’s possible that the new administration’s policies will bear out this goodwill, it’s also possible, after the administration convenes, that there is a new perspective. Time will tell.         
 
Aldo Waker may be reached at (512) 771-7557 or awaker@upstreamip.com. www.wakerfinancial.com
 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.  
 
Securities offered through Sigma Financial Corporation * Member FINRA/SIPC Investment Advisory Services offered through Sigma Planning Corporation,  A Registered Investment Advisor.       
 
Citations.
1 - money.cnn.com/data/markets/dow/ [11/17/16]
2 - investing.com/news/stock-market-news/s-amp;p,-nasdaq-higher-as-investors-digest-yellen-remarks-441723 [11/17/16]
3 - fortune.com/2016/08/03/donald-trump-infrastructure/ [8/3/16]
4 - blogs.wsj.com/moneybeat/2016/11/17/why-the-small-cap-rally-may-stick-around/ [11/17/16]
5 - marketwatch.com/story/stop-calling-stock-market-rise-a-trump-rally-2016-11-17 [11/17/16]
6 - bloomberg.com/news/articles/2016-11-15/s-p-500-futures-inch-ahead-as-investors-speculate-on-trump-plans [11/15/16]
7 - forbes.com/sites/davidmarotta/2016/11/14/how-the-markets-moved-after-a-trump-victory/ [11/14/16]  

 

June 24, 2016

It Was the Best of Times...

Do you remember the opening lines of A Tale of Two Cities by Charles Dickens? 

 

"It was the best of times. It was the worst of times."

 

With such a close vote in Great Britain to exit the European Union, if you are in Britain you probably believe one or the other of those two sentences.

 

There is no doubt that there will be some challenging times ahead for the UK and the other EU countries. However, there will also be some very good investing opportunities for us here in the US. When there is a shock in the system, it's time to start looking for stocks on sale.

 

If you are a client, you know that I have my "green book" of 150-200 stocks that I follow intently every day. That means I read and analyze their financial statements, I follow decisions made by the management team throughout the year, I look at the company's fundamentals and analytics, and I read every word of analysts' quarterly reports.

 

This morning, I analyzed those stocks even deeper for both a drop in price and a rise in dividend yield. Those that hit the marks I set for them, are now locked in my crosshairs. I will continue to dig and analyze them in the coming days and weeks.

 

I encourage you to do the same thing. Today may or may not be the day to buy. Next week may or may not be the week. But, if you are a serious investor, this is the time to make a list of your favorite stocks and set your mark for when to buy them. 

 

Yes, we still have challenges here at home such as slow wage growth the rising dollar, etc. But, opportunities are also developing. The widening of the Panama Canal, for one. 

 

It's important not to panic. Although these may be the worst of times for some, and that is truly unfortunate, at the same time these are the best of times for others. The stock market is made up of those two sides: a strategic seller and a strategic buyer. As I've said before, panic is not an investing strategy.

 

<span style="font-family:; font-size: 12pt;" times="" new="" en-us;mso-bidi-language:ar-sa"="" roman";color:#333333;mso-ansi-language:en-us;mso-fareast-language:="" "times="">So, stop picking what stocks to sell and start picking what stocks to buy.

 

 

January 31, 2016

Are You an Optimist or a Pessimist?

After raising interest rates for the first time in almost a decade last month, the Federal Reserve (Fed) met last week and unanimously decided to hold them constant for now. Optimists will focus on the Fed's remarks that they saw strength in many areas of the US economy including housing, household spending, business investment, and the labor market.

On the other hand, pessimists will focus on the Fed's remarks that they also saw declining exports and slowing inventory investment, and said that US economic growth actually slowed late last year. The miss was a combination of slower consumer spending, weak fixed investment, inventory headwinds, and a very weak state and local government spending figure. Regardless, the Fed's view on the US economy is encouraging to optimists, and stood firm in its belief that the economy will continue to expand at a “moderate pace”.

The Fed's relatively positive outlook stands in stark contrast to the recent volatility we've seen in many financial markets around the world. Part of this may be because the areas that appear to have caused concern in the markets recently (such as Chinese growth, movement by the Japanese Central Bank, rising oil inventories), are less immediate concerns to the Fed given their domestic agenda. Still, these global developments cause many people to believe we are heading towards a recession.

So, can the markets predict a recession?  As the economist Nouriel Roubini has joked, the stock market has predicted “twelve of the last eight recessions”. What this means is that even though the stock market can be a leading indicator of economic decline, it can also be misleading. Historically, there have been several downturns in the stock market that wrongly predicted a coming recession. In fact, at times, these downturns lead to several years of continued growth.

Ben Casselman put the equity market volatility in perspective: "Set aside the psychological importance of the New Year and what we're really talking about is a market that lost 9 percent in 12 trading days. That's hardly unprecedented. We had equally bad 12 day stretches in 1950, 1955, 1957, 1962, 1966, 1970, 1973, 1974, 1978, 1979, 1981, 1987, 1997, 1998, 2000, 2001, 2002, 2008, 2009, 2011 and 2015. That list includes some brutal recessions and memorable crashes, but also several incidents that proved little more than blips."

Just as the stock market can be ineffective at predicting recessions, so can many experts. Research by Prakash Loungani from the International Monetary Fund found that many economists have a terrible record of forecasting recessions.  For example, they failed to predict the 2008-9 recession even in September 2008 when it was already in progress. This is one reason why you design asset allocation strategies for the long-term rather than make frequent adjustments based on short-term predictions.

The trick is not to be the hottest stock picker, a great forecaster, or develop the best investment model.  The trick, regardless of being an optimist or a pessimist, is to survive. Although we can't control the direction of the market, we can control what we do about it. Panic is not an investment strategy. An investment strategy requires a disciplined approach to asset allocation involving diversification and periodic rebalancing based on your specific investment horizon.

Performing that trick requires a strong stomach for being wrong, because we are all going to be wrong more often than we would like. But it helps to know that sometimes being wrong is inevitable and normal, not some terrible tragedy, not some failure in reasoning, not even bad luck in most cases. Being wrong comes as a result of an activity whose outcome depends on an unknown future.

The simple fact is that over time, the economy and financial markets spend a lot more time expanding than they do contracting.  Optimism is the correct default setting, but pessimism can be as big of a sales pitch as anything, especially if it's around emotional topics, like money. Has anyone ever seen the pitch to buy "gold" as your only insurance when the financial world is scheduled to collapse?

The financial markets are constantly forcing us to call into question our own process and strategy. This is probably the best and worst part about investing. The markets either keep you honest and humble, or they can drive you crazy and cause mistake after mistake.

So, are you an optimist or a pessimist?  Does it matter?  How about just being a smart, disciplined investor.

 

December 13, 2015

The price of oil will go up… and down.  Really.

I recently heard a joke:

A Texas Wildcatter was distressed about the drop in oil prices.  So, he kneels down to pray: "God, please tell me, will the price of oil ever go up again?  And if so, when?"  God comes down from above and answers, "My son, the answer to the first question is: Yes.  The answer to the second question is: Not in my lifetime!"

The price of oil recently fell to below $40 per barrel, attracting everybody's attention, given that oil was trading at over $100 per barrel just one year ago. The reasons for this are complicated, and a recent NY Times article[1] pointed out that among them are concerns of oversupply following a meeting among members of OPEC. The global oil cartel recently chose to continue producing oil at high volumes in order to protect their market share.  Saudi officials have said that if they cut production and prices go up, they will lose market share and that will merely benefit their competitors.

Most analysts agree that at least for the immediate future, the Saudis will resist any sharp changes in policy, especially as it tries to navigate multiple foreign policy challenges, like the chaos raging in neighboring Yemen.

There are also a number of conspiracy theories floating around.  Some oil executives are quietly saying that the Saudis want to hurt Russia and Iran, and so does the United States — motivation enough for the two oil-producing nations to force down prices.  After all, dropping oil prices in the 1980s did help bring down the Soviet Union.

However, most experts agree that there is no evidence to support the conspiracy theories.  Saudi Arabia and the United States rarely coordinate smoothly and the Obama administration is hardly in a position to coordinate the drilling of hundreds of oil companies seeking profits and answering to their board of directors and shareholders.

The stark reality is that the IMF (The International Monetary Fund) estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by over $300 billion this year. If prices remain low for another year or longer, the Saudi newly crowned King Salman may find it difficult to persuade other OPEC members to keep calm against the financial strains of low oil prices.

Falling oil prices are also not good for energy companies.  Stock prices of companies in this sector have dropped dramatically.  Chevron and Royal Dutch Shell recently announced cuts in payroll to save cash, and they are in far better shape than many smaller independent oil and gas producers that are slashing dividends and selling assets as they bleed cash and report net losses.

On the other hand, low oil prices is good news for others.  Most households are likely to spend $750 less on gasoline this year because of the drop in oil prices.  And companies that use oil in their products and services such as airlines, manufacturing, and chemical companies, will experience a financial windfall because of cheaper production costs.

Which brings me to my point:  The fall in oil prices and their subsequent effects is a great example of how a diversified portfolio can help manage risk.  What hurts one sector of the economy, or stock market, can help another.

What can be helpful in situations like this is a concept called “value investing”.  This is not an attempt to predict the future of oil prices, but looking to add undervalued stocks to your portfolio based on current metrics.  Many of those undervalued stocks currently happen to be in the energy sector.  Value investing is an approach I always look to implement when building a portfolio or when rebalancing across asset classes.

In fact, Fama and French[2] found that holding undervalued stocks (as assessed on a price/book value basis) historically boosted returns by 0.42% per month or 5.1% a year, on average, relative to holding a portfolio of stocks having an average valuation using the same approach.

So, we know the price of oil will go up again.  When?  It shouldn't matter to investors having a long term investment perspective and a well-diversified portfolio.  After all, as God implied in the joke, the history of oil is of booms and busts followed by more of the same.

 

[1] Clifford Krauss, Oil Prices: What's Behind the Drop? December 7, 2015, NY Times

 

December 5, 2015

Don't Fight the Fed

In the US this week we saw healthy employment data, combined with some evidence of a softer manufacturing sector. The European Central Bank lowered interest rates and extended its asset purchase program out to March 2017. These efforts are intended to stimulate the European economy. 

The US Federal Reserve Board meets in a couple of weeks, and is expected by many to raise interest rates. This is in part due to the positive economic data we have seen of late. What does this mean for you? 

The first thing to note is that trying to predict the Fed is never a good idea. Forecasters have anticipated the Fed raising rates for the past several years only to be proven wrong. For example, many thought rates would rise in September and that did not happen. We saw similar forecasts in 2014 and even 2013. So even though a rate increase may seem probable this December, these events are far from certain. Trying to adjust a portfolio based on predicting short-term events can lead to higher trading and tax costs, and not necessarily better investment outcomes. 

It is also important to remember that international diversification is an integral part of a portfolio. While European and Chinese central banks have been easing their monetary policies, the US appears poised to tighten. It's clear that the global economies, at least in the developed markets, are at diverse points in their economic business cycles. Even though you will likely see more headlines about what is happening to US interest rates, remember that an international portfolio is exposed to a broad set of global events. This correlation may help smooth investment outcomes and volatility of an investor's portfolio over time. 

I believe the reason the Federal Reserve is considering higher interest rates is because the US is experiencing relatively low unemployment and potentially increasing inflation for the intermediate term. Both of these are generally considered signs of a healthy, growing economy, and economic growth can be an important contributor to stock market growth. 

According to research published in the book Invest With The Fed, (R. Johnson et al, McGraw-Hill, 2015), returns of equities and bonds have historically “remained” positive during periods of tighter monetary policy.  I emphasize the word “remained” because the author does goes on to say, “in periods when the Fed has been lowering rates, the S&P 500 earned an annualized return of 15% versus about 6% during periods when the Fed has been raising rates.”

So, if the Fed does raise rates this month, remember that it is in response to the positive scenario of a strong US economy. For now, I suggest investors keep expectations tempered until we see what the economic data looks like in the coming months.

What is SRI?

November 13, 2015

I've been asked many times about socially responsible investing. Recently, I answered a question on Nerd Wallet regarding this topic and am posting here for those of you who may be interested.

Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. That's the “technical” definition. But, just as there is no single approach to SRI, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing,” “ethical investing,” “green investing,” “impact investing,” “mission-related investing,” “responsible investing,” “socially responsible investing,” “sustainable investing” and “values-based investing,” among others.

From 2012 to 2014, SRI enjoyed a growth rate of more than 76 percent, increasing from $3.74 trillion in 2012. More than one out of every six dollars under professional management in the United States today—18% of the $36.8 trillion in total assets under management tracked by Cerulli Associates—is involved in SRI.

Some people believe that SRI focused companies have worse returns than non-SRI. Well, some companies do and some don't. When they do have worse returns, my clients who are committed to SRI prefer to sacrifice a small amount of return for the ability to sleep at night. My job as an investment advisor, is to manage risk so that the sacrifice remains small or is eliminated.

Many people think that when you invest in SRI you can keep money from going to bad companies. Not true. When you buy stock you are usually not buying directly from the company -- you are buying from other investors. Investors like us just keep exchanging the stock among ourselves, and the company doesn't see any of the money. (Except when the company issues new stock, which is rare.) So really, we use SRI to make money, but also to also support those "good" companies who we believe are doing what is in our own personal best interests.

So what criteria do I use to distinguish a "good" company from a "bad" company? I classify companies into categories such as these:
1. Companies whose very product or service is questionable from a client's perspective (e.g., weapons manufacturers and tobacco companies).
2. Companies whose product or service is benign, but who have poor records in areas such as the environment, minority advancement, community involvement, or charitable contributions.
3. Companies whose product or service is laudable, but have poor records in the areas mentioned above.
4. Companies whose product or service is benign and have acceptable records on social responsibility.
5. Companies whose product or service is laudable and have acceptable records on social responsibility.

Some say that no large company is completely clean -- some are just "less bad" than others. For example, the largest plastics recycler in the world is also the largest producer of virgin plastic. And why producing bicycles is a laudable goal, critics allege that a major bicycle manufacturer uses sweatshop labor to produce its bikes. The point is, that as long as you are informed you can decide whether the company is "good" or "bad" for you.

There are still other complications. Over the years some small eco/responsible companies I follow invariably seem to get bought out by a larger company, or themselves grow bigger and then attract multinational investors who may not share the same values as you. Others go out of business.

Everyone has their own values and draws the line in different places. Some people will invest in anything and everything, some will invest in only certain companies which they feel are acceptable, and some people want nothing to do with corporate investing at all. In my practice, I help those in that middle category, who want to invest but are choosy about which companies they'll invest in.

 

A Quickie Will Cost Couples

This week, the budget deal that moved quickly through Congress puts an end to "file-and-suspend," a strategy for couples that boost lifetime Social Security retirement benefits by hundreds of thousands of dollars.

File-and-suspend - a little-known strategy until a few years ago - has been quickly gaining popularity because it allows married couples to have the best of both worlds.

The strategy calls for the higher-earning spouse to file for Social Security benefits at his or her full retirement age, and then suspend it to allow the benefit to grow, until as late as age 70. The lower-earning spouse is then able to claim spousal benefits at his or her own full retirement age, and later shift to their own full benefit, if it is larger. (A spousal benefit is half of the primary earner's benefit.)

It is estimated that the “file-and-suspend” strategy adds $9.5 billion in annual benefit costs to the program according to the Center for Retirement Research.  So, the White House targeted it for elimination in the budget plan issued last year, calling it an aggressive move used exclusively by high-income households to "manipulate" benefits. The budget deal approved by the House this week would clamp down on the practice for anyone who turns age 62 after calendar year 2015.

File-and-suspend has been at the top of the list for reform over the past year -- and it was thrown into this deal as part of the political back room negotiations that yielded the crucial agreement to beef up Social Security's disability insurance trust fund.

That fund was on track to run out of money next year, which would have produced an immediate 19 percent cut in disability benefits; that problem has now been pushed out to 2022.  The budget deal reallocates funds from Social Security's retirement trust fund -- a move pressed for by disability advocates and the White House but resisted by Republicans.

The original bill language also implied that benefits would be ended for spouses who already were receiving benefits under a spouse's suspended filing.  That would have been horrendous for those people currently relying on benefits – not to mention the  administrative nightmare it would have presented to the Social Security Administration.

Congressional sources say that was never the intent, and that the language in the bill is being revised to say that only new file-and-suspends are disallowed, beginning 180 days after the bill is signed into law. That opens a window for six more months for people to file and suspend, if they choose that strategy.