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Every day we’re bombarded with reports of what’s hot and what’s not – fueling a fear-of-missing-out (FOMO) on some great investment opportunity. Heck, there is even a new exchange traded fund with FOMO in its name. But a diversified portfolio is still the best way for you to maximize returns while minimizing risk.
The anxiety that we feel when we believe something better is happening elsewhere isn’t unique to investing. Fear of missing out is a phenomenon that affects many aspects of our daily lives, and it’s far more prevalent than you may think.
Indeed, FOMO was added to the Oxford English Online Dictionary in 2013, along with such other contemporary expressions as selfie and twerk. The emergence of social media has only compounded the FOMO effect.
How FOMO affects the way you think about your investments is more worrisome. This summer, as we started gathering at neighborhood barbecues again, you are likely to have heard some neighbor bragging how his portfolio outperformed the S&P 500 Index so far in 2021. Almost immediately, you might be dissatisfied with your portfolio and wonder why it wasn’t achieving the same results.
You might get just as upset with your diversified strategy when every media outlet is constantly reminding you about the stellar performance of some particular stock or sector. There’s a huge temptation to change course and invest in the latest hot streak. Fueling the urge is so-called "recency" bias, a belief that recent financial trends will continue.
But changing your portfolio to take advantage of a run that has already taken place is foolish. Think about it: You would be selling assets that may be undervalued relative to the market in order to buy assets that have scored huge gains and are likely more expensive.
Moreover, history is littered with examples of hot trends gone cold. In the late 1990s, many investors wanted to abandon their diversified portfolios and buy booming technology stocks. In the mid-2000s, it seemed everyone wanted to borrow money to flip real estate. A few years later, investors were worried about a double-dip recession and wondered if they should sell their stocks and buy gold instead. Now, cryptocurrency is all the rage.
In each case, FOMO caused investors to be more afraid of missing a bull market than suffering large losses. In hindsight, changing your long-term investment strategy would have been a drastic mistake.
When everyone from those in the media to your own acquaintances tells you to place heavy bets on one or more investment categories that have recently done well, don’t be fooled by FOMO. You could lose big. That’s why a diversified portfolio strategy is still the best chance to achieve long-term investment success.
How does a wise investor avoid falling prey to FOMO? That’s easy, just remember the adage: “If it sounds too good to be true, then it probably is.”
To avoid losing large amounts of money due to your FOMO, the best move is to diversify your holdings. Diversifying your assets among various types of investments and asset classes allows you to get a better risk-adjusted return. You spread the risks around. Over the long term, you will reap the benefits of many investment sectors, rather than suffer massive losses when a bubble bursts.
Your financial advisor is an expert on diversifying your investments by helping you invest wisely in various asset classes and help you combat your FOMO.
Contributing to charities comes with a load of tax rules. Here’s are a few things to think about:
What kind of donation will you make this year? The maximum you can deduct depends on whether you donate cash or property and on the type of charity as defined by the Internal Revenue Service:
In most years, any donation generally maxed out at 50% of your yearly income minus deductions, or adjusted gross income (AGI). And deductions for donations to certain groups such as veterans’ organizations, fraternal societies, nonprofit cemeteries and others often maxed out at 30% of your AGI.
But guess what? The IRS put a temporary limit on charitable contributions (and this is expected to change yet again, so be careful before you donate).
Taken directly from the IRS website:
“In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income. A corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year. To qualify, the contribution must be:
Contributions of non-cash property do not qualify for this relief. Taxpayers may still claim non-cash contributions as a deduction, subject to the normal limits.”
To whom do you want to donate? The IRS requires that you give to a qualified organization in the U.S. to claim a deduction. An organization’s merely claiming tax-exempt status doesn’t automatically make your donation deductible.
Many major charities fit the criteria, but double-check that your organization of choice makes the list. The IRS offers a search tool to look for qualifying organizations.
Learn what you may not know. You can never deduct some donations, for example, such as Bibles, gifts to individuals and donations to political parties or candidates. Services provided are also not deductible.
For deductible cash donations, the IRS requires standard documentation of a bank record, payroll deduction or written communication from the qualified organization. This communication must include the name of organization and the date and amount of contribution regardless of the amount donated.
For all donations (cash and property) more than $250, you must show the above documentation, plus a written acknowledgement of the donation’s amount and whether any portion of the donation was in exchange for goods or services.
These few reminders only skim the surface of charitable giving. Best to check with your financial advisor before you give until it hurts.
Cocktails for a Cause was a fun event to attend and support. The ladies of the La Visionaria Guild have been hosting fundraiser events since 2007 to raise funds and develop ongoing community support for Valley Children’s Healthcare. It was through the fundraising efforts of the original Guilds that Valley Children’s Healthcare was constructed in 1952 at its original site.
We are honored to give our support to this Guild, that takes pride in their mission and the history of their founding mothers, with a new Guild endowment to help keep kids healthy where they live, learn and play.
For many affluent individuals, occasional gifts to a favorite charity may satisfy their charitable inclinations. The added incentive of an often substantial tax deduction, coupled with various estate planning benefits, is sometimes the driving force behind such charitable gifts. However, for some individuals, philanthropy is a far more serious endeavor, often involving a succession of substantial gifts of at least $5 to $10 million that may necessitate the need for control and general oversight. In such situations, a private foundation can be an ideal mechanism for managing a large, continuous charitable giving program.
Test your knowledge with this short quiz.
1) True or False. The charitable deduction for contributions will be limited depending on the type of charitable organization that is ultimately receiving the gift from the private foundation and the type of gift being made.
2) True or False. There are generally four types of private foundations: nonoperating; operating; company-sponsored; and supplementary.
3) True or False. The three ways a private foundation can be structured are: a nonprofit corporation; a trust; and an unincorporated association.
In its simplest form, a private foundation is a charitable, grant-making organization that is privately funded and controlled. When properly arranged and operated, a private foundation is an income tax-exempt entity, and tax deductions are permitted for individuals (donors) who donate to them.
Contributions to a private foundation are deductible for gift and estate tax purposes. The income tax deduction of gifts to a private foundation is a bit more complex. Generally, the deduction is based on the fair market value (FMV) of the gift (at the time of the gift) and is limited by the donor’s adjusted gross income (AGI). The charitable deduction will also be limited (to 20%, 30%, or 50%) depending on the type of charitable organization that is ultimately receiving the gift from the private foundation and the type of gift being made. Gifts that are not cash or publicly-traded securities, and that are valued at more than $5,000, require adherence to additional rules in order to ensure deductibility.
In addition to the advantages of a tax deduction (which is generally not exclusive to private foundations), private foundations may also offer an array of other benefits. Because a private foundation is typically established to manage a long-term charitable gifting program, it may, in turn, highlight the philanthropic presence and identity of the donor within the community and/or a particular charitable cause. It can also serve to create a family charitable legacy while, at the same time, protecting individual family members from the pressures of other charitable appeals. Finally, a private foundation can serve as an appropriate mechanism for controlling distributions to a charity(ies), as well as determining which charities the foundation will benefit.
When a private foundation is established, there are two issues that need to be addressed. First, what type of private foundation should the donor establish? And second, how should the private foundation be structured? There are generally three types of private foundations:
Each type of foundation has specific characteristics that make it appropriate for a particular situation. There are also strict requirements and guidelines that must be followed for each type of foundation.
The most common type of foundation is nonoperating. Essentially, a donor, or group of donors, makes contributions to the foundation, which, in turn, makes grants to a charity(ies). In this case, the donor has no direct participation in any charitable work. There are several variations of this type of foundation.
On the other hand, in an operating foundation, the foundation may have direct involvement in charitable causes (e.g., an inner city youth center), while retaining the tax benefits of a “private” foundation (although, in some respects, operating similarly to a “public” charity). To qualify as an operating foundation, it must also meet several requirements and tests.
In addition, a company-sponsored foundation can be used when the majority of contributions are from a for-profit corporate donor. Generally, this type of foundation operates similar to a nonoperating foundation. It is usually managed by corporate officers and has the added benefit of allowing some contributions to accumulate over time. This can help CGPVTFN1-X
the foundation make continual grants when corporate profits are low (a time when, ordinarily, contributions would be otherwise forgone).
After careful thought is given to the type of foundation to be established, the foundation’s structure should be taken into consideration. There are three ways in which a foundation can be structured: 1) as a nonprofit corporation; 2) a trust; or 3) an unincorporated association.
There are a number of factors to be weighed when deciding on which structure is best. Generally, if the donor intends to keep the foundation in existence permanently, a nonprofit corporation or trust may be a better choice. Additional considerations include: state and local laws governing private foundations; the type of foundation; the type of donor; assessing the need or desire to make future changes or delegate responsibilities; and personal liability issues.
Creating and maintaining a private foundation is much more involved than the use of more traditional charitable giving mechanisms (e.g., charitable remainder trusts (CRTs)). Therefore, legal and accounting professionals who have experience with private foundations must play a significant role in such an endeavor. In addition, due to the added complexity and need for highly specialized legal and tax expertise, the expenses for design, set-up, management, and grant administration in a private foundation will generally be substantial. Typically, a private foundation is only viable for individuals who intend on making periodic gifts in excess of $5 million.
Certainly, the private foundation allows today’s philanthropist the opportunity to manage substantial charitable gifts, as well as the ability to actually become involved in charitable work, if he or she so chooses. It also affords the donor the opportunity to be recognized for charitable giving, while solidifying his or her philanthropic legacy. This article serves as a general overview of a very complex planning area. Like all advanced planning issues, appropriate counsel should be sought in order to meet the goals and objectives of all involved parties.
Quiz Answers: 1) True; 2) False; and 3) True
Giving away some of your money is a great way to support the people and organizations you love. But there are smart ways to do it, minimizing your taxes and avoiding pitfalls along the way.
Once you have provided for your own retirement and met your personal expenses, think about benefiting others – whether it's your parents, children, grandchildren, friends, neighbors, church, synagogue, mosque, school or service organization. Your money is usually happily received, and you get a warm feeling from being a benefactor.
Consider some of the great givers.
You may not have the resources of a Rockefeller, Carnegie or Gates. But here are some prudent ideas for what to do with your money:
1. Give $15,000 per year to family, friends and other people you love. You may make an unlimited number of gifts, up to $15,000 each, of cash or other property each year, completely tax-free. If you left the same gifts at your death and your assets were subject to the estate tax, the recipients would see their gifts shrink by around 50%.
2. Open a joint account with those to whom you wish to give your money. Retain the checkbook, debit cards and other access points to retain as much control as possible. The account can avoid probate when you die. You can also list the beneficiary’s name first on the account, and this person will pay the taxes on any earnings from it.
There are disadvantages however, and these include:
3. Utilize charitable giving. This type of giving may provide current tax savings and minimize or avoid estate taxes. The money you donate is an investment in your community, the nation and the world.
Of course, it's wise to be cautious when donating. Research the organizations to which you wish to donate, and be sure that your money will be used in the way that you desire.
These steps will increase the probability that your donation dollars will benefit the people and organizations you want to help.
Trust, but verify. Be cautious of charities that spring up overnight in connection with current events or natural disasters. They may make a compelling case for your money, but they most likely don't have the infrastructure to get your donations to the affected areas or people.
Call the charity. Ask if the organization is aware of a solicitation you received and has approved it. If not, the solicitation may be a scam, mounted in the charity’s name.
Check with local recipients. If giving to local organizations is important to you, call the organization to verify they will benefit from your generosity.
Verify the contribution is tax deductible. Your contribution may not be deductible. If a tax deduction is important to you, ask for a receipt showing the amount of your contribution and stating that it is tax deductible.
Trust your instincts. And check their records if you have any concern about contributing. Callers may try to trick you by thanking you for a pledge you didn't make. If you don't remember making the donation or don't have a record of your pledge, resist the pressure to give.
Ignore high-pressure sales. Legitimate fundraisers generally don't push you to give on the spot.
Be wary of charities offering to send a courier or overnight delivery service to collect your donation immediately.
Consider the costs. When buying merchandise or tickets for special events, or when receiving free goods in exchange for giving, remember that these items cost money and generally are paid for out of your contribution. Although this can be an effective fundraising tool, less money may be available for the charity.
Be wary of promises of sweepstakes winnings in exchange for a contribution. Under U.S. law, you don't have to donate to be eligible to win a sweepstakes.
Do not send or give cash. Cash can be lost or stolen. For security and tax record purposes, it's best to pay by credit card or check -- made payable to the charity, not the solicitor.
Talk to your financial advisor. Your advisor is one of your best sounding boards and safeguards as you consider your charitable contributions.
Read that last one again.
Cedarwood Elementary School is able to have special events throughout the year because of a community fundraiser. The Cedarwood Parent Teacher Club (PTC) hosts a golf tournament with several levels of sponsorship. Strong Valley came alongside and went above and beyond the top level and donated 165 custom designed hats, each with the Cedarwood Elementary logo. All golfers were given a hat for their participation. A large amount of the hats were given to the PTC to sell at the school site, raising additional funds as well as school spirit!
The latest mess out of Washington is the fight to increase the federal debt ceiling. If this isn’t resolved, some fear catastrophe for the markets. Relax. Stocks may dip at first, but a market debacle won’t happen.
The debt ceiling fiasco will come and go, market volatility will likely increase and we have to manage our emotions and follow our investment discipline. There will always be drama in D.C. or unexpected announcements on Wall Street.
Long-term financial success dictates that we learn to manage headline generated waves in the market and recognize which ones truly matter and which are just ripples under our boat. Remember, some ripples even offer potential opportunities.
The politicians in D.C. seem to generate drama regarding just about everything these days. While many of the laws that state legislatures and Congress pass are in fact important, let’s take a closer look at the debt ceiling, which is a special situation.
For the past few months, discussions of the debt ceiling have slowly crowded out other stories on the newswires. That is a serious issue, and we certainly have opinions about it, but this article is devoted to helping you understand the market more than politics.
First things first, the debt ceiling does not give Congress the ability to spend more money. It does not hand over a blank check for them to do whatever they please.
So, if the debt ceiling does not allow Congress to spend more money, then what does it do? In the simplest terms, it approves the check to be written to pay for the spending that lawmakers already approved.
Imagine if you receive a credit card with a limit of $5,000, and then charge $5,000 on it. When the bill comes in the mail, you decide if you’ll pay it off or not. That’s essentially what Congress is doing, determining: whether they will pay the bill to cover the spending that the House, Senate and president already signed off on.
Seems fairly simple doesn’t it? Well, like most things that happen in Washington, both parties attempt to latch special spending items to bills that raise the debt ceiling. The important discussion of how much the U.S. government spends should ideally occur when voting on the actual budget. Without an agreement on this question, we could see a government shutdown.
Here is a very important thing to remember: if the debt ceiling is not raised and the government does shut down, it wouldn’t be the first time. In fact, it wouldn’t even be the twentieth time.
Since 1976 the government has been shut down 22 times, the last being between December 22, 2018 until January 25, 2019 (35 days). If this happens, then yes, the stock market will likely react negatively.
But we will survive and there will be a light at the end of the tunnel, the question is how long it takes to reach there.
When business is booming, many business owners don’t take the time to find out if their organization is running at maximum efficiency. Wasteful practices may abound, but are seldom addressed in the rush to get the product out or job done. Yet, when business slows, the time is there to take stock of business operations, formulate new strategies, and find innovative resources to help improve the efficiency and economy of your business.
Here are some issues to consider when planning to improve your company’s chances of success in the face of changing economic times:
This may seem like an obvious question, but formulating the right solutions without impairing your operations is seldom easy. Look for large and small ways to economize, without changing vital areas. For example, it may be possible to reduce the number of vehicles used or to conserve energy by turning off equipment when not in use. Now may be a good time to revisit some of your agreements and possibly negotiate a temporary or long-term discount. Consider taking advantage of bargains by buying in bulk or locking in prices for the future.
The marketing approaches your firm used in boom times may be less effective under tighter conditions. Clients may be more cautious about commissioning
projects, and they may want greater reassurances that they are getting quality and value for their money. While it may be a struggle to increase your marketing budget, well-targeted advertising campaigns can go a long way toward bringing in new business. Stepping up your networking efforts, both in person and online, is a low-cost option for attracting new customers and staying in touch with existing clients.
Lowering your prices may be a painful but necessary measure in a declining economy. Even if you don’t reduce prices across the board, you may offer discounts or incentives to attract and retain customers. If your customers agree to adjustments in the scope of the work or types of materials used, it may be possible to lower your prices while still maintaining profit margins.
Some companies start laying people off at the first signs of an economic slowdown. However, this can prove to be a dangerous overreaction, especially if your business ends up losing its most valuable employees. If you need to reduce payroll costs, consider viable options for doing so without letting good people go, such as offering flexible schedules, time off for training, or reduced hours for employees who want them. If necessary, consider trimming the size of retirement and health benefits, with assurances to employees that benefits will be restored as business improves.
When funds are tight, keeping track of cash flow becomes especially important. Check that your invoicing processes are operating efficiently, and that outstanding accounts are managed quickly. As obtaining credit becomes more difficult, meet with your accountant and your banking representative to discuss your credit lines, ways to improve your company’s credit score, and the options available in case of emergency.
Implementing new software and other information technologies, and integrating these programs into your business operations, is a complex and sometimes arduous process. A slower pace can provide your firm’s staff with the time they need to familiarize themselves with IT solutions that can help your business operate more efficiently. When better times return, your firm will continue to benefit from the productivity enhancements. Review your website, ensuring that the information is up-to-date and professionally presented. Investing time in enhancing your online presence will likely pay off during the downturn and as the economy improves.
Adapting to change is never easy. But, neither is running a business. Rather than focusing on the recession, focus on emerging leaner and more competitive than ever. After all, when the going gets tough, the tough get going.