Tax Updates

Minimum Required Distribution rule change for 2009:
Almost anyone who is required to take a minimum required distribution in 2009, as a participant or as a beneficiary, does not need to take the distribution from their retirement plan or IRA in 2009. If you think this impacts you, consult with us or your tax advisor, as there may be planning opportunities. It may make tax sense to take some distribution for 2009, but less than you would otherwise be required to distribute.

Ford Hybrid Tax Credits:
If you order or purchase a new 2010 Ford hybrid vehicle by March 31, you may be eligible for a tax credit of up to $3,400 on your 2009 Federal tax return. The Ford Fusion and Mercury Milan are eligible for $3,400 credits, while the Ford Escape (which I own and love!) and Mercury Mariner are eligible for $3,000 credits. The credit amounts decrease after March 31.

Note that credits may be available from other automakers. This was recently announced, so I am posting this for informational purposes only.

Also, depending on your tax circumstances, particularly if you are affected by the AMT, you may not actually get the benefit of the credit upon the filing of your income tax return (that’s why I’ve used the term “eligible” for a tax credit and have not stated that you “will” get a credit). So, keep in mind that even if you purchase a car eligible for one of these credits, you may not actually get the benefit of the tax credit. That’s the tax code!

Recommended Reading

The first Saturday of March is a special day for me, as that is traditionally the morning when Warren Buffett’s annual report and shareholder’s letter is released (though last year he surprised me by releasing it late Friday afternoon). Reading his letters are invaluable. I will share some highlights of this year’s letter when it is released.

As Buffett made a huge gift to the Bill and Melinda Gates Foundation, Buffet encouraged Bill Gates to write an annual letter, which was released earlier this week. It is fascinating reading and incredible, both in the poverty and medical problems in other parts of the world and the significant efforts that Gates and his wife Melinda are making, both financially and with their time, in an attempt to address and cure some of these problems.

For example, in 1960, almost 20 million children died under the age of 5, of the 110 million children born. In 2005, when more than 135 million children were born, fewer than 10 million children under the age of 5 died. Gates called this “one of the most amazing statistics ever.” His Foundation is focusing on vaccines to cut the 10 million figure in half again within the next 20 years.

I highly recommend reading this report. It will give you an appreciation of how well off so many of us are, and the steps that Gates is taking to address many of the world’s problems. For more information and the full annual letter, see gatesfoundation.org.

In commenting on the world’s economic issues, Gates wrote: “If you take a longer timeframe, such as five to ten years, I am very optimistic that these problems will be behind us. A key reason for this is that innovation in every field-from software and materials science to genetics and energy generation-is moving forward at a pace that can bring real progress in solving big problems. These innovations will help improve the world and reinvigorate the world economy.”

If the Best Can’t Pick ‘Em, How Can You?

Each week, Morningstar.com publishes an article entitled “Fund Times,” which writes about fund managers that have been fired, quit, changed jobs, etc., among other things.

On January 22, 2009, the lead article was that Vanguard was replacing a subadvisor (manager) for 50% of one of their actively managed funds, Vanguard Growth Equity. In early 2008, they replaced the other subadvisor, who managed the other 50%.

With all the resources that Vanguard has, why would they be frequently changing the managers of this mutual fund? This once again shows how difficult it is to predict the future success of active fund/money managers. Even Vanguard could not do it. Vanguard selected a certain manager a few years ago (presumably after lots of research by many professionals), based on their past performance, then the performance fell below their respective benchmark for a period of time and Vanguard decided to make a change.

Our philosophy is rather than trying to pick and chase a fund manager that will consistently beat a respective benchmark (which is extremely hard to do), we build a portfolio to match the benchmark for each asset class. In the long run, academic data shows that this will be the winning strategy.

Can You Judge a Book By It’s Cover?

I’m not sure we have the answer to that, but we do know that you can judge or evaluate a financial advisory firm by the information and books that they read, or do not read. We value the importance of continually learning from prior financial history and the lessons that can be learned from reading other experts and certain journalists.

Books that we’ve read (and recommend):

  • Snowball, Warren Buffet’s biography, by Alice Schroeder (Excellent background on his life)
  • Panic, by Michael Lewis, a collection of essays on financial crisis from the 1980s to now
  • A Demon of Our Own Design, by Richard Bookstaber
  • Investment Policy, Charles Ellis
  • Buffet: The Making of an American Capitalist, written in 1990s, Roger Lowenstein
  • When Genius Failed: The Rise and Fall of Long Term Capital Management, Roger Lowenstein
  • A Random Walk Down Wall Street, Burton Malkiel
  • Four Pillars of Investing and other books by William J. Bernstein
  • Books by Larry Swedroe, Director of Research, BAM Advisor Services

I will post more to this list in the future. Many of the books that I read before we formed this firm were instrumental in developing our investment philosophy.

Daily or Periodic Reading

  • The Wall Street Journal (in print and electronically), daily, since high school
  • The New York Times, electronically
  • Morningstar.com
  • Nick Murray Interactive (online advisor’s newsletter)
  • Information and commentary provided by BAM Advisor Services and Dimensional Fund
  • Advisors
  • Financial Journals: Investment News, Financial Advisor, Investment Advisor
  • Leimberg Services, an online subscription service which provides tax and estate planning updates
  • Some of our favorite journalists: Jason Zweig (WSJ), Roger Lowenstein (NY Times and others), Floyd Norris and Joe Nocera (NY Times)
  • Atlantic Monthly (now emailed monthly to my Kindle)

Welcome

Welcome to the Wasserman Wealth Management, LLC Blog (wassermanwealth.com), where we intend to write and comment on wealth management, financial and tax matters, as well as non-financial items.

We hope this Blog provides timely, relevant information and insight for our current clients, prospective clients and referral sources.

If you have any suggestions or comments, please email me at bwasserman@wassermanwealth.com.

Enjoy!