MORE FINANCIAL TIPS FOR WOMEN
Tax Time: A Good Time to Review Your Retirement Plan
As you are filing your personal tax returns, it’s a great opportunity to review all of your savings and retirement accounts. One account that may not be top-of-mind is your employer’s 401(k). If offered through your workplace, a 401(k) is a worthwhile investment vehicle and you should consider taking advantage of it. What is a 401(k)? A 401(k) is a retirement plan that is offered by your employer to permit a defined contribution from your paycheck. This percentage of your salary, your deferral, is deposited for your own benefit and often matched by your employer. Pre-tax dollars are used and accumulate tax-deferred. Note: a Roth 401(k) option using after-tax dollars may also be available. Best of all, since your deferral comes out of your paycheck BEFORE you receive it, you can’t spend it! How is a 401(k) invested? Each employer sets up its own plan. Today, most are using mutual funds through an advisory relationship in order to manage the investments. FAM Funds may be included in an employer’s menu of mutual fund choices, when appropriate, and a third-party administrator takes care of the paperwork and accounting. How does an employee take money from their account? Assets may be taken from your 401(k) when: a) you terminate your employment with your current employer (a rollover to another retirement account is typical); b) you retire and your firm begins to distribute the funds to you; or c) you are working - your employer will specify ways you can take funds including loan provisions (there are also death/disability aspects). How much can an employee contribute? For 2011, a total of $16,500 may be added to your 401(k); if you are 50 or older, you can add an additional $5,500 to your deferral. If your employer makes contributions as well, this augments your total deposit for retirement. Keep in mind, if you have the opportunity to participate in a 401(k), it is a great place to start to accumulate assets and prepare for the future. Investment Alternatives - Fenimore's Approach to Fixed Income
While Fenimore has launched many new ideas and different investment portfolios in recent years, one that is on my mind and has been a part of many client conversations is our fixed income accounts. Fenimore has managed fixed income, by special request, since we opened our doors in 1974. We formally offered fixed income portfolios in 2009, as suggested by our Client Advisory Council, to assist clients whose financial needs and objectives evolved as they entered retirement or their risk tolerance decreased. It is timely to outline Fenimore’s strategy as this topic is getting a lot of media attention lately. Investors are again comfortable with the risk-reward tradeoff of stocks and asset flows have been funneling back into equities. At the same time, some investors feel they need to maintain a portion of fixed income securities within their portfolios and need to understand what alternative may be best.
What does this mean at Fenimore? Simply, that as you consider your portfolio’s asset mix, we have a fixed income alternative you may find desirable especially given today’s interest rate outlook.
What you need to know:
Fenimore’s investment approach to fixed income portfolios is similar to our equity accounts. The same way that we are risk averse in stock picking, we are focused and diligent in choosing CDs and bonds. Because our objective is to preserve capital first and foremost, Fenimore is currently looking at short duration, high quality, and financially sound fixed income instruments. For example: FDIC-insured CDs; corporate bonds of financially ironclad American companies; and municipal bonds backed by revenue streams of essential projects and services. All bonds must meet Fenimore’s minimum criteria of high quality A and AA corporate and municipal bonds, respectively.
How we are different:
Fenimore’s focus is concentrated. We saw some investors lose capital and confidence in fixed income investments during the financial crisis and felt we could do better. Hence, our team developed an approach that primarily focuses on instruments with partial guarantees through the U.S. banking system, federally sponsored agencies, or direct obligations of the U.S. government.
Moreover, Fenimore employs its same strategy of "buy-and-hold" in our fixed income portfolios. We conduct our own research and analysis while also utilizing outside rating agencies. Fenimore’s present fixed income strategy is positioned well to take advantage of a rising interest rate environment while providing stability of principal.
If ever you are considering an alternative for your total financial picture, we’d be happy to tell you more about our fixed income strategy. Please call us, 877-901-8555.
Tax Update
While you are thinking ahead, save your year-end statements and set aside contribution receipts and other tax documentation that you will need for filing before April. As the New Year begins, many of your 2010 year-end reports will contain necessary tax information so keep them organized.
Donating Appreciated Assets
Given this year’s market appreciation, you may be looking to make a gift before December 31st. A gift to your favorite registered charity or your church may be made using appreciated securities. Making a gift of appreciated securities is a win-win. It gives the charity the use of the full market value without paying any taxes on the appreciation from your cost basis. In turn, you are able to potentially reduce your future tax liability and help someone in need!
IRA Contributions
Don’t Forget– It’s not too soon to begin making your retirement contributions for 2011 (after 12/31/10) and it’s not too late to contribute for 2010 either. All mailed 2010 IRA contributions must be postmarked by April 15, 2011. For both 2010 and 2011, contribution limits are $5,000 ($6,000 if over age 50). You may be able to deduct this contribution (traditional IRAs only) from your tax filing plus benefit from tax-deferred appreciation in your IRA account. It makes good investment sense for you to mail one check in early 2011 to cover contributions for both years and let your money start working for you!
If you need more guidance in putting together all of the final pieces of your 2010 financial year, please call and/or check out FAM Funds’ Tax Center at famfunds.com. It includes tax bracket information, year-end distribution data, and a link to IRS Publication 564 (income tax information for mutual fund shareholders). The Tax Center can be found within “Shareholder Services.”
During this time of holiday cheer, all of us at Fenimore wish to extend to you the happiest and healthiest of celebrations. May each moment spent with friends and family be blessed!
Fall at Fenimore
This is my favorite time of year – not only because of the foliage and the seasonal bustle of “back to work,” but also because Fenimore hosts our two best events all year.
Visit FAM Funds' Annual Shareholder Informational Meetings recap. Don't Let Go of Buy-And-Hold Despite popular opinion, buy-and-hold investing is not dead! This is difficult to discern when the noise in the industry tells you to reconsider your strategies due to the losses investors sustained in 2008 to 2009. After every severe downturn traditional investment approaches such as buy-and-hold become passé, yet results show that it stands the test of time. Buy-and-hold is a proactive investment approach that requires appropriate research, patience, and an intimate knowledge of the business underlying the stock. When properly implemented, you can benefit from holding stock in a financially sound company whose economic value is increasing over the long term. The numbers behind this reasoning show that a business may grow on a company’s balance sheet, but the value might not be reflected in the stock price in the short term. This may be due to the business’ stock being out of favor because of Wall Street pessimism and/or frustration with the economic state of affairs – very similar to what we are observing today. How can financially strong companies perform above average even in poor economic periods? A company that generates free cash flow can increase shareholder value in slow economic environments through the wise use of its cash reserves. It can use that cash to expand the business by investing in its products and services, reduce debt, pay dividends, or repurchase its stock. All of these actions can increase the stock’s value even if the economy idles. Consider one of Fenimore’s holdings, John Wiley & Sons – a book publisher. We first purchased John Wiley in the summer of 2002 at a price of approximately $24 per share. Perennially, management tells investors to expect sales to grow in the mid-single digits – certainly not astounding growth. But Wiley generated large amounts of cash which it used to make two significant acquisitions, repurchase stock, and increase its dividend annually. As a result of these actions, Wiley returned roughly 7.3% (share appreciation and dividends) annualized from our original purchase. Comparatively, the S&P 500 Index returned an annualized 2.5% while real GDP experienced annualized growth of just 1.7% during the same eight year period from the summer of 2002 to 2010. We hope that you will continue to evaluate your investment strategies diligently and turn to us to help you objectively review your total financial picture at least annually. Fenimore’s advice is to know what you own and stick to a sound, well thought out investment plan that includes stocks of good businesses with long-term growth potential. Make sure you use buy-and-hold as part of your strategy because it endures economic cycles (it also promotes tax efficiency – a topic for another financial tip). Diversification (Asset Allocation)
We often hear, “Don’t put all of your eggs in one basket – diversify!” But what does diversify really mean? Unfortunately the topic is vast and can be quite ambiguous because of its many definitions and interpretations. At Fenimore, we seek to build a diversified portfolio of various, well-managed, financially stable, and enduring businesses. Expressions of Care
As the May flowers bloom Upstate, our thoughts turn to our mothers. And what a wonderful day we mark on the calendar to celebrate those special women in our lives! However, as many Hallmark greetings note, it should not just be this time of year that we lift up and cherish these role models – we should do it daily. Just as we remember who impacts us, it’s also good to be mindful of what impacts us both now and in the future. Investing is a core aspect of our lives that has a significant influence! Yet too often we remember to demonstrate our love for others, but we forget that it’s okay to think of ourselves as well. There is a simple investment strategy that can be a regular expression of care for yourself and others. It’s called dollar-cost averaging (DCA). DCA is a strategy that involves investing a fixed dollar amount into your mutual fund at regular intervals. Since you always invest the same amount, you will purchase more shares when the price is low and fewer shares when the price is high. It allows you to focus on long-term growth and ignore short-term market conditions.* The way I do this is through my FAM Fund account; before I have a chance to think about what dollars come out of my checking account, they’re invested! Reflecting on Mother’s Day, FAM Funds has a true story we use as an example of DCA and what a considerable difference it can make. FAM Funds’ George Chelius had the idea to show shareholders how DCA could work for them – and him. Seven days after his daughter Anna’s birth, George opened a FAM Value Fund account for her with $2,000. Every month after he added $100 and did so for 18 years. Upon high school graduation, Anna’s account had grown to $89,348.42. So as we praise our mothers and their care for us this month, consider also putting that gratitude to work for yourself or a loved one with dollar-cost averaging. * Keep in mind that dollar-cost averaging is a long-term investment philosophy. It takes advantage of the cyclical nature of the market and, in essence, averages the highs and lows as they affect your mutual fund account. Day-to-day market fluctuations become less of a concern when focusing on the long term. An investor must consider their financial ability to continue purchases through periods of low price levels. Also, dollar-cost averaging does not guarantee a profit or protect against a loss in declining markets. Take Advantage of “Free Money”
What did we learn from the tumultuous markets and depressed economy? One thing for sure is that it’s important to save for a rainy day. And a good place to start is to maximize your retirement savings. If you have a 401(k) at work or a similar retirement plan, taking advantage of it may be one of the best decisions you ever make - especially if your employer matches your contribution! Putting retirement savings into your 401(k), a "defined contribution plan," via payroll deposit is easy to do and may have the added benefit of an employer match. That means for each dollar you save, you get more - it’s like “free money!” There are two key 401(k) advantages you should consider: 1. Because this retirement plan is funded with pre-tax wages, you don't pay taxes on what you save until you make withdrawals. Also, the amount you contribute to the plan is subtracted from your earnings in order to calculate your annual Adjusted Gross Income, therefore reducing your income tax. 2. Try to contribute at least enough to get any matching contribution - this multiplies the money you invest. Also, if you can afford to max out your plan, I highly recommend it. Please note: 1. Changing jobs? A direct rollover of a 401(k) to a No-Fee FAM Funds Traditional IRA is a nice option because it allows you to avoid both the 10% early distribution penalty and any Federal income tax. 2. FAM Funds may be available through your retirement plan at work. Ask your employer or give us a call. 3. You still have time to contribute to your retirement accounts for 2009 (until April 15, 2010). Do it today! 4. You can convert any Traditional IRA into a No-Fee FAM Funds Roth IRA. Stick to Your Plan A recent headline, “Will We Ever Again Trust in Wall Street?” reminded me that there is still a lot of investor anxiety in our midst. Perhaps this has to do with fear of the unknown – the complicated investment choices in the market and the mystery of the frenetic activities in lower Manhattan. New Year – New Strategy – New You
Who looks out for you best? Who can prioritize your needs like no other? The obvious answer is you! And wouldn’t you love a few extra dollars to spoil yourself in retirement? Establish A Long-Term Financial Plan
You may be faced with certain circumstances in 2010 that will change over the years:
And in the day-to-day we neglect to take the time to think ahead:
In all of your savings projections, it is impossible to predict what lifestyles or circumstances your investments can maintain, unless you take the time to develop a comprehensive plan. Make the hard choices today so that you are prepared for the future. For example, too many investors believed that their dividend yields would continue forever and this simply wasn’t feasible. |
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