Shareholder Activism - Part I

Posted on March 9, 2010
Filed Under Shareholder Activism

As shareholders we have the power to influence corporate policies.  Over the years, systems have evolved within the Socially Responsible Investment industry by which our collective shares may be leveraged to create major policy shifts in corporate America, so that companies incorporate more sustainable and just business practices.

 

In our next three blog posts, we will outline some of these players, their recent successes, current issues being addressed in a number of different companies, and a case study on limiting executive compensation.

 

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Paying for College: how to take distributions from a 529 account

Posted on February 22, 2010
Filed Under College Planning, Financial Planning

You generally have three options when requesting a distribution from a 529 plan: 1) a check made payable to the account owner, 2) a check made payable to the student or 3) a payment made directly from the 529 plan to the student’s college. I prefer the second option in almost all cases. Your child can then simply endorse the check from the 529 plan over to you.

The advantage with having the check made payable to the student is that the Form 1099-Q reporting the distribution to the IRS shows the student’s name and Social Security number. If the student incurs qualifying higher education expenses, or QHEE, during the calendar year that are equal to, or greater than, the gross distribution figure on Form 1099-Q, the distribution is tax-free. And when all 529 plan distributions in a year are tax-free, nothing is shown on the student’s Form 1040. The IRS can always “audit” the return, but in the vast majority of cases will simply assume the 529 earnings were properly excluded.

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Retirement Planning Opportunities & Changes for 2009-2010

Posted on January 21, 2010
Filed Under Financial Planning, Roth IRA

Below is a brief discussion of some of the major opportunities available for you now and in 2010.  A check-up with your tax professional, and/or financial advisor is wise to ensure that you are taking advantage of all great tax and retirement planning strategies given your individual situation.

ROTH – IRA CONVERSIONS for 2009

If your income is low this year, due to layoff or lower business income, for example, you still have time to convert IRA accounts to Roth IRA.  This can save you thousands of tax dollars later as the Roth-IRA monies will grow tax free vs the IRA which is tax deferred.  It is also worth noting that with all of the reckless government spending, there is a great chance that tax rates could increase in the years ahead. This is another reason why now may be as good time as ever to convert. If converting may send you into a higher tax bracket, you could consider doing a partial conversion (only converting a portion of your Traditional IRA to avoid going into the next bracket).  Your AGI must be below $100,000 in order to qualify for a conversion.  Before converting from a traditional IRA to a Roth, be sure to consult your tax advisor and/or financial advisor.  You should fully understand the potential tax impact of a Roth conversion on your finances and your estate.

First determine your 2009 estimated income, and then convert an amount that allows you to at least “use up” Read more

Seize the Opportunity! Understand the Incentives for First -Time Home Purchasers

Posted on August 27, 2009
Filed Under Financial Planning


It doesn’t get much better than this for first-time home buyers!  Low interest rates!  Home prices at a 5 year low!  !  And free government money for your purchase  - as long as you qualify!

 In an effort to jump start our national economy and with housing markets across the board taking severe hits, Congress agreed on a program to increase housing demand by offering an $8,000 tax credit.  In addition, San Diego Housing Commission is offering local incentives for buyers of foreclosure properties. This federal credit, unlike other’s labeled as such in the past, is a dollar-for-dollar match AND it is refundable so even if you do not have $8,000 worth of federal tax liability for 2009, you can still take advantage of this program to the fullest.  For example, say you would have normally paid $5,000 in federal income tax after all other deductions and credits are taken into account, then you will receive a $3,000 check from Uncle Sam!   So how exactly do you take advantage of these opportunities?   FEDERAL INCENTIVES: Some of the main criteria to qualify for this program include: Fist-Time Home Buyer:  Anyone that has not owned a home in the last three years is considered a first-time home buyer.   Purchase Date: You must CLOSE between 1/1/09 and 12/1/09 Your Income: This benefit begins to phase out for taxpayers who file as Single at $75,000 and those that are married and file jointly at $150,000.  The credit is reduced incrementally with modified adjusted gross income (MAGI) above these limits and is reduced to $0 after $95,000 Single and $170,000 MFJ. As with all tax related issues, every individual is different and you should make sure to consult your tax advisor for specific details.   SAN DIEGO BUYERS OF FORECLOSURE PROPERTY: In addition to this Federal tax credit, the local government of San Diego is also administering several programs to help prospective buyers get into their first home.  Thanks to a $9.4 million grant from the Federal Government buyers who purchase a foreclosed property are eligible to participate in specific assistance programs.  These benefits are being offered by the San Diego Housing Commission (SDHC) and are only applicable in specific areas of San Diego, for precise locations please see website link below. All potential buyers are required to attend an eight hour home buyer education class before placing an offer on a property.  Any buyer considering participating in NSHP should enroll in a class today as soon as possible. The SDHC is accepting pre-approval applications and first-time home buyers are encouraged to contact a certified NSHP lender to assist with the process; or the buyer can complete the pre-approval application on their own.  For questions regarding the pre-approval you can contact:  Vicki Monce 619.578.7491, vickim@sdhc.org .Here is what you could receive if you qualify and get on board with the program: NSHP Deferred Payment Loan SDHC offers eligible buyers a 0% interest, deferred payment loan up to 17% of the sales price to assist in the purchase of the home with no payments required for 30 years, unless the property is sold, refinanced or not owner occupied, at which time the loan must be repaid. A minimum of 3% buyer down payment is required and the mortgage obtained must have a 30-year fixed rate. NSHP Closing Cost Assistance GrantSDHC will provide eligible buyers with a closing cost assistance grant up to 3% of the sales price. The grant can ONLY be used to pay closing costs which are not covered by seller concessions or other subsidies. The grant is recoverable, and must be repaid plus 5% interest if the property is sold, refinanced, or not owner occupied within the first six years. After six years, the grant is forgiven. NSHP Rehabilitation Loan SDHC will provide eligible buyers with a 0% interest rehabilitation loan up to $50,000. The rehabilitation loan must be used for repairs related to health and safety, curb appeal, and energy efficiency. Loans up to $10,000 will be forgiven in 5 years; loans up to $30,000 will be forgiven in 10 years; loans up to $50,000 will be forgiven in 15 years. If the property is sold, refinanced, not owner occupied, or if the repairs have not been maintained within the term of the loan, the rehabilitation loan must be repaid plus 3% interest.  With housing prices down over 30% from previous highs (some locations have seen an even more dramatic decline) many current renters are considering purchasing their first home and these programs can help make that a reality.  Remember these local loans and grants must be used on foreclosed properties in specific areas but if you do find an applicable property the benefits can truly be great.   

Additional information on all of the above programs can be found at:

Federal Incentives:  http://www.federalhousingtaxcredit.com/2009/index.htmlSan Diego Housing Commission: http://www.sdhc.net/NSP.shtml#Pre-approval

Launching SRI Webinar Series - your portal to sustainable wealth

Posted on April 28, 2009
Filed Under Event Invite, Financial Planning, Mutual Funds, Socially Responsible Investing, Webinar

Carsten HenningsenNext Friday we are launching a new monthly webinar series, featuring money managers that specialize in socially responsible and sustainable investing.

The webinars will take place regularly, on the first Friday of every month, at 1:00 PM Pacific Standard Time.

Please RSVP for our innaugural webinar featuring Carsten Henningsen, founder and Chairman of Portfolio 21 Investments, based in Portland, Oregon.

Carsten is a pioneer in the field of social and environmental investing, as the founder of a global mutual fund committed to investing in companies incorporating environmental strategies into their business practices. Carsten drives on biodiesel and helped create Portfolio 21’s award winning carbon mitigation program.  He is also a founding director of Upstream 21, helping to keep local companies local, and his nonprofit, Community Friends, a microfinance fund in Sri Lanka. His work has been recognized by the United Nations Environment Programme. Carsten is a graduate of Stichting Nijenrode, The Netherlands School of Business and the University of Puget Sound.

He has served on the national board of directors of The Social Investment Forum, 1000 Friends of Oregon Foundation; The United Nation’s Eco4TheWorld; The Sustainable Investment Institute, ARABLE: the Association for Rural Agriculture Building the Local Economy; the Ecotrust Council; the City of Portland Sustainable Industries Committee; the financial advisory Committee of NCAP: Northwest Coalition for Alternatives to Pesticides; and the development committee of the McKenzie River Gathering Foundation. Carsten testified for Oregon’s Anti-Apartheid Bill which passed in 1987 and worked on tobacco divestment legislation.

Portfolio 21 invests in companies designing ecologically superior products, using renewable energy, and developing efficient production methods. Companies held in the fund seek to prosper in the 21st Century by recognizing environmental sustainability as a fundamental human challenge and a tremendous business opportunity. In his presentation Carsten will discuss his role of managing risks and returns, and his insights behind the investment opportunities presented by the growing ecological crisis being driven by overconsumption and the increasing environmental degredation.

Please join us for this exciting webinar presentation to gain the viewpoints of a money manager with over 25 years in the sustainable investing business.  

Environmental Risks in Mutual Funds

Posted on April 16, 2009
Filed Under Climate Change, Mutual Funds, Socially Responsible Investing

TruCost, an environmental research firm, just released a groundbreaking report that ranks mutual funds by their carbon footprint. The report assesses 75 of the largest US equity funds and 16 socially responsible / SRI funds identifying the greenhouse gas emissions associated with their combined almost 3,000 stock holdings.

As SRI investors, we have long believed that companies with poor environmental records will eventually be exposed to future costs related to their ecological impact. These could come in the form of clean-up costs, litigation costs, regulatory burdens, etc. Investment News, a national magazine, interviewed and quoted our own Judith Seid as saying, “This report is basically going to solidify what we have always believed conceptually, which is that companies that are less environmentally aware have greater risk.”

Now it looks as though companies having a large carbon impact may very well be staring down some large future expenses if a cap-and-trade program begins, as proposed, in 2012. Reps. John Dingell and Rick Boucher have announced a cap-and-trade bill that amends the Clean Air Act to regulate greenhouse gases and force the U.S. to reduce greenhouse gas emissions 80% below 2005 levels by 2050. And we know that President Barack Obama plans to address climate change in order to reverse a trend of rising emissions. Under the plan, companies will have to purchase a permit for each ton of greenhouse gases they emit. The US budget predicts $79 billion in proceeds from the trading scheme in its proposed first year, rising to $646 billion by 2019.

Cap-and-trade schemes will have to change cost structures for companies and industries. As author Krosinsky predicts in the study “This will have knock-out effects on investment returns. There will be winners and losers… Carbon costs will increase operating costs for companies with carbon intensive energy sources …Attempts to pass on carbon costs are likely to drive up the price of goods and spur customers to switch to lower-carbon alternatives where possible.”

In the study, fund holdings were grouped according to their investment styles. The footprint of the most carbon-intensive fund was over 38 times larger than the lowest-carbon fund, reflecting the range in potential carbon risk. And although there was a wide divergence in carbon intensity among all 91 funds studied, the combined Sustainability/SRI funds measured the smallest carbon footprint of all categories.

Al Gore, former Vice President of the US, warned at the United Nations Institutional Investors Summit on Climate Risk (Feb 14, 2008, New York) that, “You need to really scrub your investment portfolios, because I guarantee you — as my longtime good redneck friends in Tennessee say, I guarandamntee you — that if you really take a fine-tooth comb and go through your portfolios, many of you are going to find them chock-full of subprime carbon assets.”

The importance here is that mutual funds comprised of companies that are carbon-efficient may be less exposed to escalating carbon liabilities, making them better positioned for future sustainable profits and investment returns than their carbon-laden peers.

You can find the entire study linked to our website here.

How to Survive a Bear Market – “Armchair Quarterback” Analysis

Posted on March 16, 2009
Filed Under Financial Planning, Market Crises

I thought you would all appreciate this “armchair quarterback” analysis, done by a colleague in Cincinnati, OH, charting the mood swings during the 4th quarter of 2008 and its remarkably awful, three-month market run, which has continued into the first quarter of 2009.  See table below:

Start Date End Date # of Business Days % Gain or Loss Play by Play Narrative

09/15 09/19 5 4.51%  
09/22 10/10 15 -27.36% “What is happening?  Should we get out?  Will it bounce back tomorrow?”
10/13 10/13 1 10.28% “Okay, there is hope after all!”
10/14 10/15 2 -10.03% “Maybe not…”
10/16 10/20 3 8.77% “Is it okay today?”
10/21 10/27 5 -14.15% “Here we go again.  Should we sell?”
10/28 11/4 6 18.72% “Never mind.  It will be okay”
11/5 11/20 12 -24.50% “Wait a minute.  I can’t take this anymore.”
11/21 11/28 6 18.59% “I’m glad I didn’t sell last week.”
12/1 12/1 1 -8.74% “What will tomorrow bring?”
12/2 12/31 22 9.81% “Looks like we’re back on track now.  Or are we?”
    78    

Think of this as taking a chart of the stock market’s volatility over the last 4 months of the year, and holding a piece of paper over all but the previous periodic movement.  Then based on that day’s shift, make a call on what to do with your money, moving the piece of paper from left to right, making day-by-day calls with each tick.

Would this approach, making daily decisions based on short-term price movements, have been helpful to the long-term health of your portfolio?  Do you feel this is the way to create long term wealth?

Many people think there are “experts” who got people out of stocks before the real meltdown.  It is the unfortunate reality however that these same advisors who get you out of the market during bad times, usually remain too fearful to get you back into the market in time to benefit from the recovery.

As I have said before, the time to get back into investments is at the point of maximum fear, when there is blood in the streets, and that time is coming, if not here.

Waiting out a bear market in cash sounds like a great idea but, without a crystal ball, it is among the worst possible investment strategies. Investment gains are made in just a few days out of the year. Keeping in mind that past performance is not indicative of future returns, another study (this one by consulting firm SEI in 2002) highlighting the 12 bear markets since World War II, shows that investors who cashed out during a bear market and waited until the market “recovered” before getting back in, jumped in too late and lost out on double digit gains. Investors who held on through the downturn, gained an average of 32.5% in the first year following the market’s recovery. Investors who jumped back into the market just 3 months late, gave up over 17% of the market’s gains and it took them an additional 1 1⁄2 years to recoup their losses.

 

Investors Who: Gains After 1 Year Broke Even After
Rode the market down & back up 32.50% 1.5 Years
Jumped back in 1 week too late 24.30% 2.5 Years
Jumped back in 3 months too late 14.80% 3.0 Years

This bear market will end, and it will do so when we least expect it.  Remember, recoveries are only labeled thus in hindsight.  By the time the headlines scream ‘recovery,’ it’s too late — investors who do not reinvest will have missed out.  Worse yet, they will have made the classic investing mistake of “sell low and buy high.”

What has become very apparent to me throughout this mess is the absolutely essential value of a “financial plan”.  This is our roadmap that we have developed with you, our client.  This is supposed to reflect your values, take into account goals and lifestyle needs, and consider the case of emergencies or disasters along the way; whether it is a worldwide financial meltdown, a sudden illness, a catastrophic weather related incident, a job loss, the collapse of a company or industry, etc.  So far our financial plans are working.  It is vital to know that you have your base protected so that the markets will not force you into a lifestyle change.

Towards this end, for some of our clients, we have been supplementing or exchanging stock portfolios into lifetime and/or fixed annuities in order to lock in income needs we have determined you have.  For others we have adjusted your allocations and for some of you, you are buying into stocks now at these lower prices.  This way you will be well-positioned for the eventual market upturn, which oftentimes can come fast and furiously and catch us by surprise.

In addition and as part of the financial planning process, it’s vital to assess your spending patterns.  Ever since the first credit card in 1950, the Diner’s Club card, our society has become accustomed to buying things they can’t really afford.

And so our culture of over-spending and over-consuming that has fueled our economy is part of what has created this economic downturn and is the current fact that millions of people are now reforming their spending habits. Our economy has been heavily dependent on consumer spending, and every economic stimulus package is passed in hopes that taxpayers will spend every dime of it rather than pay down their debt.  This is short-sighted and, in my opinion, does not address the more fundamental issue at hand.

It seems to me that our economy has to find a solution to this dilemma:

The behavior that is good for the consumer is bad for the corporate world.
The behavior that is good for the corporate world is bad for the consumer.

This conflict of interest, which is currently built into the fabric of our economy, will need to be resolved.  The fact that people are re-setting their priorities and moving further away from a wasteful economy will in the long run be a good thing for people and the planet overall.

We look forward to continuing to assist you in the ongoing development and refinement of your personal financial plan, monitoring of your investment portfolios, and guidance in weathering this bear market intact.

Is it a good time to convert to a Roth IRA?

Posted on March 2, 2009
Filed Under Financial Planning, Market Crises

If your retirement assets took a beating in the recent stock market decline, converting an IRA to a Roth IRA may be one of the best tax strategies this year and could save you a fortune in taxes.  But you need to understand the rules and play the game right.

It’s a good time to convert if you believe the market is as low as it will go, with the comfort that you will actually have a chance to change your mind later!  The Roth can be a real bargain, allowing any increase in account value from that point forward to be earned tax-free.  When you do the conversion, you must pay income tax on the amount you are converting. This can be the whole account or a portion of it.  But, subject to certain restrictions, no tax is assessed when the money is withdrawn. You also avoid the mandatory 70 ½ distributions (waived in 2009), which can leave more for your beneficiaries if you don’t use the money yourself.

How much you benefit from the conversion will depend on how the investments do subsequently, but there is great potential.  If the investment springs back, not only will the appreciation  be free from income tax, but if tax rates increase in later years (which seems likely), you will have done the conversion at today’s lower rates.

First available in 1998, Roth IRA assets grow and are withdrawn tax-free since the money deposited already has been taxed.  In contrast, a traditional IRA is tax deferred and you’ll pay taxes on the entire balance when monies are withdrawn..  But deposits into traditional IRAs may be tax deductible.  If you are contributing to an employer plan, you must meet certain income limits.

Example: Let’s say you’ve wanted to convert to a Roth IRA for years but never did. Back then, your account was worth $100,000 and you would have paid taxes on the entire amount. But the value has fallen to $60,000 today. If you’re a long-term investor and believe the investment would rebound, converting to a Roth would save you from paying taxes on $40,000.

Income Limit for Conversion - $100,000 in 2009, NO limit after 2010.  For many people, the income limit for conversion has been the main hurdle.  In 2009, you can only convert traditional IRAs to Roths if your adjusted gross income does not exceed $100,000 and you’re willing to pay taxes up front. The ceiling applies to both singles and married couples filing jointly.  Those who earn less this year than in the past, perhaps because of a layoff or a business setback, may qualify for the first time to do a conversion.  

However, beginning in 2010, any taxpayer will be able to convert an IRA to a Roth IRA regardless of the level of his or her income. Furthermore, one-half the income from a Roth conversion in 2010 will not be taxable until 2011 and the other half will not be taxable until 2012, unless you elect to report it all in 2010

Recharacterization Rules – You can change your mind!  For those who regret converting, because their account value falls below the amount at time of conversion, the IRS provides an exit. You can take back each conversion - called a recharacterization - by Oct. 15 of the year following your conversion. Let’s say you converted to a Roth in May 2008, you have until Oct. 15, 2009 to tell the IRS you changed your mind and chose to switch back.  Once you have recharacterized, you are not permitted to do another conversion with the same assets until the following year or 30 days after the first conversion, whichever is longer. However, if you still have other money in a traditional IRA, you can get around the rule by converting funds out of the other IRA.

5 Year Hold Rule: You do have to hold the converted assets in a Roth for five years or until you turn 59½, whichever comes first, to make penalty-free withdrawals of your converted amounts. Each conversion has its own five-year clock.  If you’ve already reached age 59½ and you convert traditional IRA assets to a Roth, you can withdraw the assets you convert at any time without worrying about a five-year deadline or penalties.

Other IRS Guidelines: Traditional IRA deductibility (if contributing to an employer plan) - 2009 modified AGI limits:

  • Joint - More than $89,000 but less than $109,000
  • Single - More than $55,000 but less than $65,000

2009 Limits for contributions to a Roth  (not conversion):

  • Joint - More than $159,000 but less than $169,000
  • Single - More than $101,000 but less than $116,000

2009 Roth-IRA Max Contribution Amount

  • $5,000 under 50
  • $6,000 50 or over

FA Green Highlights Blue Summit’s Client Action Network

Posted on February 13, 2009
Filed Under Shareholder Activism

FA Green HeaderBy Dorothy  HinchcliffDuring this severe economic downturn that’s driven revenue lower for many advisory firms, it’s more important than ever for advisors to come up with creative ways to serve clients and keep their business. Advisor Judith L. Seid has found an interesting way to do just that. After learning that many clients would be interested in being more directly involved in shareholder activism, Blue Summit Financial Group launched a client action network, says Seid, CFP, president and founder of the La Mesa, Calif.-based firm. “We had been providing the investment vehicles that were doing shareholder activism on our clients’ behalf,” says Seid, whose firm focuses on socially responsible investing. “We spoke to our advisory board and found out that clients really didn’t know what was happening behind the scenes. They felt removed from the process.” In addition to strengthening relationships with clients, the Blue Summit Client Action Network also is part of the firm’s marketing efforts. Says Seid: “We want to make sure that we are putting efforts into ethics and corporate behavior and hope that people realize there’s more to investing than making money, it’s about making change.” To get the network going, the firm formed a client committee to organize and run it. Seid and Blue Summit vice president Shane G. Johnston attended the network’s first meeting recently to offer guidance and ideas. They introduced the group to some of the organizations working for corporate responsibility, including the nonprofit As You Sow, founded in 1992. Among other actions, As You Sow has led investor coalitions that have pushed for alternatives to genetically modified foods and that helped convince Home Depot to phase out sales of wood products from endangered forest areas. “We’re helping clients by bringing them into contact with other entities they can tie into so it’s easier for them to have a larger impact by piggybacking on things that institutional investors are doing,” Seid says.One of the first actions the Blue Summit network may take up is a letter-writing campaign to convince Pepsi to increase recycling of plastic bottles, which cause millions of seabirds and other ocean animals to die each year. The network also may participate in efforts to encourage the Obama administration to form an Office of Innovation In Corporate Social Responsibility and to ask Kraft Foods, McDonald’s and Avon to disclose the use of any potentially harmful nanomaterials in their products. Nanomaterials are very small particles that have relatively large surface areas and can react more frequently with tissues in the body, which can increase stress on the body or cause cell death, according to a 2008 study by UCLA researchers. Seid says by helping to organize the network, the firm shows clients that it cares about them and shares their values. Blue Summit also is providing updates on the network to clients in its newsletter.“We care about them feeling more empowered and their portfolios being strong,” she says. “When you look at what companies are doing—and this is important to look at from an investment standpoint—these companies are taking risks that can impact liability. Unethical practices certainly add to overall risk the investor has.” In fact, she continues, questionable business practices today may become the basis of liability suits tomorrow. “Whoever thought years and years ago that tobacco companies would have to pay for the health problems they caused?” she notes.

Retirement Plan Limits, Reminders & Required Minimum Distribution Changes for 2009

Posted on January 26, 2009
Filed Under Financial Planning

This is the time to make sure you are contributing the maximum the IRS allows to your retirement plans.

For those of you who automatically contribute to your retirement accounts every month, you may need to increase your monthly amounts to meet the 2009 limits going forward, as this will not happen automatically.

If you plan to invest the maximum amount in your retirement accounts, you will want to review and possibly update the amount you are deferring through your employer. If you have IRAs you may want to review and update your monthly investment amounts to these accounts. Please see the new limits below.

The deadline for IRA & Roth-IRA contributions is April 15th, and the deadline for SEP & Simple-IRA is tax filing deadline, including extensions.

If you are over 70½ years old, you get a break in 2009. Congress has suspended your Required Minimum Distributions (RMD) that need to be taken form your IRA for 2009, due to the down-market.

Please feel free to call us with any questions whatsoever.

Here are the new limits for 2009:

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