Archive for June, 2014:

a bit off subject, but….

Written on June 27th, 2014 by Jamesno shouts

We get an earful in the media and sometimes take everything we read as gospel.  Being the king of retail, Wal Mart seems to get bashed in the media every week.  Not picking sides here, but thought their rebuttal to a NYT opinion piece was a good corporate move to fight back:


Filed under General Tags:

buying a business with your IRA?

Written on June 23rd, 2014 by Jamesno shouts

For a majority of the public, the largest pool of cash they have is socked away in an IRA or employer 401k plan.  So, what happens when that entrepreneurial bug hits and they need startup cash to start a business or acquire one?  For many this has meant cashing out the IRA and paying full income tax + penalty or trying to work around the rules by opening a self directed IRA and having the IRA buy the business.

Recent IRS tax court cases may have you think twice about the latter strategy.  While the regulations don’t directly prohibit the practice of an IRA owned business there are all sorts of grey areas that the IRS is now challenging, and in many cases winning in court.  When the IRS wins this means the entire transaction is considered a “prohibited transaction” and the IRA is disqualified.  This means you owe tax on the entire IRA amount (and penalty if under 59 1/2) as if you cashed it out originally to buy the business.  

So what is the alternative?

Let’s say you really want to buy that franchise business but your only source of capital is in your rollover IRA or former employer 401k.  As a financial planner, I will 100% tell you this is a horrible idea and not to risk your retirement on it, but if you insist then a ROBS (Rollovers as Business startups) is a better option.  Under a ROBS you buy the business using a qualified business retirement plan vs. your IRA. 

A ROBS generally works like this:  you form your business and establish a corporate retirement plan for the business (a qualified 401k/profit sharing type plan), you then rollover your previous 401k/IRA into this new company plan and then instruct the administrator to buy stock in the new business with the money.  Okay, that was a very brief summary but because you are using the company retirement plan to buy shares in your new company, it functions much like buying shares of any employer stock inside your 401k. 

What are the downsides?  You must be very organized, follow compliance regulations and file appropriate forms in a timely manner.  Missing anyone of these can disqualify the plan just like the IRA above and cause major headaches.  More info can be found by searching for ROBS on the IRS website or googling the topic.  Once again this isn’t something that would be recommended, but for the right person it could be a viable startup strategy.

guide to Medicare

Written on June 16th, 2014 by Jamesno shouts

A local benefits specialist forwarded me this guide he put together on Medicare, so rather than rehash all the particulars feel free to download a copy here.  This is an excellent summary for folks getting close to the magic age of 65 and need a primer on Medicare:

Busy Executive Guide to Medicare 2014_March 12 2014


Filed under General, Insurance, Personal Finance Tags:

Do you want an Alternative?

Written on June 3rd, 2014 by Jamesno shouts

For the majority of investors, when you built an investment portfolio in the past you basically had 3 choices:  stocks, bonds & cash.  The idea was that bonds and cash would cushion you in the event that stocks were in a bear market.  Having bonds and cash as a diversification component meant that you could still achieve an optimal risk adjusted return for each level of risk.   That worked fine until the financial crises when bonds followed stocks straight down.

Back up a few years prior to the crash and many folks in the early 2000′s started hearing about these other asset classes, “alternatives” as a way to add something to their portfolios that did not necessarily correlate to stocks or bonds.  This became very mainstream with the Yale University Endowment Model.  Alternative investments covered areas such as managed futures, direct owned real estate, commodities, timber, derivatives, currencies, real assets, private equity and hedge funds (long/short, market neutral).

The biggest problem investors faced was that institutional funds and endowments had much longer time frames and much deeper pockets than the average retail investor.  It meant they not only had access to these alternatives but because they had so much money at their disposal, they could withstand the highly illiquid nature of the investments.

Fast forward to the past couple of years and alternative investment strategies are making their way to the average investor.  Now a days you can’t pull up any financial website or business news channel without hearing something about alternatives.  Why all the interest?  With bond market yields at historic lows and the stock market at historic highs, the search for an investment that doesn’t correlate to either is gaining appeal.  Many investors are looking for something that isn’t going to drop like a rock during the next market correction or when interest rates inevitably go back up.

So how do you get in on it?

Liquid Alternatives are the key.  There are now publicly traded ETF’s (exchange traded funds), Closed End Funds and your typical Mutual Funds that have adopted some of these strategies.  The difference is that with a publicly traded version, you can get in and out fairly easy.  You aren’t locked in for years as you would be with direct ownership.

As always when screening some of these new strategies, make sure you understand what you are buying.  If you are trying to add some of these components keep them at a smaller position of your overall portfolio and understand the risks.  No strategy is foolproof and until we witness a major market event, we never quite know how they will perform.