The Investment Scientist

Archive for October 2012

My friend Dan is in the life insurance business. Recently, he shared with me a case in which he helped a client of his (let’s call him John) get $600k out of his term life insurance with life settlement.

In case you don’t know what life settlement is, it’s the sale of an insurance policy by the owner to a third party for a price higher than the policy surrender value.

How does this work?

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Tax planning tips

[Guest Post By Cal Klausner] Charitable contributions should be timed so as to obtain the maximum tax benefits, either in 2012 or 2013. If a taxpayer plans to make a charitable contribution in 2013, he should consider making it this year instead if speeding up the deduction would produce an overall tax saving, e.g., because the taxpayer will be in a higher marginal tax bracket in 2012 than in 2013.

On the other hand, a taxpayer who expects to be in a higher bracket in 2013 should consider deferring a contribution until that year. This task is more difficult than in prior years because of uncertainty over whether rates will rise next year under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) sunset.

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Is this your retirement fund?

A client of mine is about to retire, and she asked me when she should start to receive social security payments.

Complicating her decision is that her husband passed away 10 year ago, and she is currently working for the federal government.

It quickly dawned on me that this is actually a very complicated question, one that this advisor, most of whose clients are doctors and business people in their 40s and 50s, is not well-equipped to answer.

You can imagine my delight when I found out on a flight that the foremost social security expert of the country, Mary Beth Franklin, was sitting right next to me.

She is a former senior editor of Kiplinger. After she retired from the job, she became a contributing editor of InvestmentNews, a magazine for financial advisors.

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There are simple ways to bring more luck to yourself: 1) Smile; 2) Don’t cross legs or arms; 3) Open to chance encounters; 4) Keep up relationships.

Like Odysseus, automatic investments help investors avoid the Siren call of market timing

We call it stupid if someone takes a $55k job, even if he is offered the same job at $100k.

We call it market-timing when the same thing happens in the stock market. The long-term average annual market return is 10%, but the long-term average annual investor return is only about 5.5%. This is documented both by Dalbar’s study titled “Quantitative Analysis of Investor Behavior” and Morningstar’s research on fund returns and investor returns.

How could this possibly happen?

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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