Blog Archives - PFwise.com

High Blood Pressure Reading and Still Get the Best Underwriting Class?

4/30/2017

Q. In my term life application, my blood pressure reading exceeded the best underwriting class requirement just a little bit. I have never had high blood pressure readings in the past. What can I do?

A. When an insurance underwriter reviews your application, he or she usually takes the average of the 3 readings of your blood pressures during the paramed exam time. If your numbers are just slightly above the threshold to get the best class, you could go to your Dr's office to do a re-check 3 times, then send the latest numbers to the underwriter for a reconsideration, it usually works.

Please contact us if you need help on your term life insurance needs.

3 Coverage Questions to Ask for Your Auto Insurance Policy

4/29/2017

Q. How to determine the best auto insurance coverage?

A. You can look at this question by breaking down the auto insurance into three coverage parts:

First, the coverage you want to have if you hurt somebody (or something);

Second, the coverage you want to have if someone hurts you and doesn't have any insurance or not enough to reimburse you for your injuries/suffering/lost earnings;

Third, the coverage you want to have to cover your car should it be damaged.

Combine these three parts, you will come up with the optimal auto insurance coverage amount.

3 Whole Life Insurance Benefits to Small Business Owners - Part C

4/28/2017

In our last blog post, we mentioned the second benefit of whole life insurance to small business owners. Now the third benefit.

Benefit 3. Saving for Retirement
Many small business owners rely on personal savings as their main source of retirement funding. However, a whole life insurance can help business owners with retirement planning. Its guaranteed death benefit, which is usually received income tax free to beneficiaries, can secure the long term financial needs of the business owner's household, while the guaranteed cash value and non-guaranteed dividends can be used to supplement income during retirement.

3 Whole Life Insurance Benefits to Small Business Owners - Part B

4/27/2017

In our last blog post, we discussed the first benefit of whole life - the concept of accessing the cash value in a whole life policy while it continues to grow guaranteed and tax-deferred. Now the second beneift of whole life insurance to small business owners.

Benefit 2. Protection from Creditors
Due to regulatory changes and an increase in the number of smaller firms in the marketplace, the proportion of small businesses structured as sole proprietorships is increasing. As a result, these owners may be exposing themselves to unlimited personal liability claims.

Could a whole life coverage help protect their assets?

The answer is yes, because in some states, life insurance policies may be protected from creditors, although it's important to check your state's law first as not all states have the same law.

In our next blog post, we will discuss the third benefit of whole life insurance to small business owners - saving for retirement.

3 Whole Life Insurance Benefits to Small Business Owners - Part A

4/26/2017

Whole life insurance is a good fit for many small business owners because of its flexibility and guarantees. While most entrepreneurs have big dreams, many don't have extensive financial resources, so here are three ways whole life insurance can help.

Benefit 1. Liquidity and Access to Cash
In today's economic environment, obtaining a bank loan to start a business or buy real estate or equipment can be challenging. As a result, entrepreneurs often rely on personal savings and investments to fund their businesses. This is especially true for people who start businesses after they retire and fund their company with money from their 401(k) plan. For these people, owning a participating whole life insurance can be extremely advantageous because it provides guaranteed, tax-deferred growth of their money as well as liquidity, access and control of it during their lifetime.

In fact, using the cash value in a whole life policy as collateral for a loan from the insurance company and then self-financing business purchases isn't a new idea. Walt Disney, after being turned down by banks, utilized the growing cash value of his whole life policy to start his first theme park. McDonald's founder, Ray Kroc, used this concept when buying out the McDonald brothers in 1961.

We will discuss the second benefit - protection from creditors in our next blog post.

Why Long Term Investment Works - Part F

4/25/2017

In our last blog post, we discussed the optimal portfolio mix. However, many investors also like to consider real estate investment as part of investment portfolio. Now we will compare Stocks and Real Estate's returns.

Real Estate Returns
The chart below shows the historical returns of real estate -

As shown in the chart above, real estate also shows similar return patterns as the stocks -

1. The longer the holding period, the more stable the return.

2. In the short term, real estate investment displays big swings.

In the long term, how do stocks' returns compare with real estate investment? This table below summarizes the findings:

The table tells us the following:

1. Stocks have the best return in the long term.

2. Real estate's long term return is even lower than that of bonds.

3. Longer term bonds only yield little extra return when compared with shorter term T-bills.

Why Long Term Investment Works - Part E

4/24/2017

In our last blog post, we showed that stocks tend to have the best return, beating bonds. In this blog post, we will discuss what will be the optimal mix of Stocks and Bonds.

Optimal Stocks/Bonds Mix
Based on the modern portfolio theory, we could theoretically determine the optimal stocks and bonds mix, as illustrated by the chart below -

In the above chart, it shows the relationship between the optimal stocks percentage in a portfolio and the holding time period. The longer your investment horizon, the higher percentage of stocks in your holdings.

In our next blog post, we will compare stocks with real estate's returns.

Why Long Term Investment Works - Part D

4/23/2017

In our last blog post, we discussed why investors speculate and the resulting poor performance. Now we will show the realistic long term stock market return one could expect.

Long Term Returns
The following chart shows the average actual returns (after inflation) of stocks/bonds/cash in the U.S.

There are a few very interesting readings from the above chart -

1. Stocks have the best return in the long term, but stocks also have the biggest fluctuations (risks).

2. You could lose money on bonds! This is due to interest rate risk (when interest rate goes up, bonds' price goes down) and inflation risk (bonds have fixed interest rates, when inflation rate goes up, the actual return suffers).

3. When the investment frame is long enough (e.g. 20 years), stock is the only investment category that could generate positive return. Your patience will be rewarded!

In our next blog post, we will discuss what will be the optimal mix of stocks and bonds.

Why Long Term Investment Works - Part C

4/22/2017

In our last blog post, we discussed two factors impacting an investment's return. Why people still want to speculate, despite knowing the odds are not in their favor?

Behavior Biases
We have discussed many investors' cognitive biases in the past at this blog post, one key reason people keep on speculating is they tend to overestimate their abilities to time the market. Such over-confidence bias leads to over-trading, unfortunately, over-trading leads to inferior returns, as shown in the chart below.

In the chart above, it's clear that investors who trade frequently achieved lower return than simply holding S&P 500 and doing nothing!

Furthermore, if you try to time the market, and unfortunately just missed 10 days of the biggest return days between 1988 and 2014 (total 6,824 trading days), how about your return? See the chart below -

In the chart above, it shows if an investor just missed 10 of the biggest up days out of the total 6,824 trading days, your return, as shown by the green line, will be only half of the return you could otherwise achieve!

In our next blog post, we will show the realistic long term stock market return an investor could expect.

Why Long Term Investment Works - Part B

4/21/2017

In our last blog post, we used historical data to show that investment works in the long term, but in the short term, investment return could have a wide swing. Why that is the case? We will answer this question below.

Two Factors
There are two key factors impacting an investment's return - fundamental and speculation.

The fundamental factor reflects the returns (dividends, earnings growths) generated from the company's operations, the speculation factor reflects market participants' opinions about the stock which would drive the swings of stock prices. From the long term perspective, the fundamental factor will bring stable returns while the speculation factor will drive short term fluctuations.

John Bogle quantified the fundamental and speculation factors' impacts on stocks' returns in the following chart -

In the above chart, the two blue colors indicate returns driven by fundamentals (dividend and earnings growth), they are quite stable at about 10% per year (except the 1930's great depression period), the dark color indicates return driven by market speculation, when people are optimistic (e.g. 1950's), the speculation drove higher returns, while in pessimistic time (e.g. 1970's), speculation drove down market return a lot, however, if you expand the time horizon to long enough, the ups and downs of the speculation-driven returns would roughly offset each other which means in the long term, fundamental drives an investment's return.

In our next blog post, we will discuss why people still speculate, despite the odds are not on their side.

Why Long Term Investment Works - Part A

4/20/2017

A successful investment takes time and patience. We will use this mini blog series to discuss this topic and use data to support this statement.

Historical Data
In this blog post, we will use historical investment data to prove this statement.

From the above chart, which shows the relationships between U.S. stocks' annual return and holding time, we can see that if your holding time is 1 year, your investment's return could have a wide swing, from negative 38.6% to positive 66.6%. Even you hold your stocks for 10 years, depending on which 10-year period it is in the history, you could have a negative 4.1% per year or positive 16.8% per year return. However, if your stocks' holding time is 20 or even 30 years, your average annual return will be at least 1%, which means you will never lose money in the 20 or 30-year time period.

In our next blog post, we will explore why long term investment works.

6 Key Tax Deadlines for 2017

4/19/2017

March 15, 2017: Deadline for S-corporation and partnership owners to file a return or extension.

April 18, 2017: In 2017, April 15th is on a Saturday and the following Monday is a public holiday, Emancipation Day, so the tax deadline has been moved to the 18th. All personal, c-corporation, or estate/trust tax returns or extensions must be filed by this date. This means that all returns or extensions need to by postmarked or transmitted for e-filing by 4/18/17. Remember, additional taxes owed must be paid by this date, regardless of whether or not an extension has been filed.

June 15, 2017: Deadline for U.S. citizens or residents that work and live abroad (including military personnel) to file a personal return for 2016. This is also the due date for the 2nd installment of 2017 estimated tax payments.

September 15, 2017: Final deadline for C-corporation, S-corporation, partnership or estate/trust owners who filed an extension to file a tax return. This is also the due date for the 3rd installment of 2016 estimated tax payments.

October 16, 2017: Last call to file a 2016 personal tax return if you filed an extension on, or before, April 18, 2017.

January 16, 2018: Due date for the 4th installment of estimated tax payments for people who kept up with their estimated 2017 quarterly payments.

Can I Purchase Life Insurance For My Parents?

4/18/2017

Q. Can I purchase life insurance for my parents?

A. Yes, you can get life insurance for your parents, however, you will need two things first:

a) Your parents' permission to insure them;

b) Show you have insurable interest on them, for example, certain financial interests you are getting from them now, so if they die you will lose those financial interests.

Could a Life Insurance Application be Denied?

4/17/2017

Q. Is it possible a life insurance application gets denied?

A. Yes, life insurance companies could deny your application due to your past and/or current medical situations. Being denied for a policy will hurt you when you look for the next. That is a big red flag among insurance companies.

Because of this, it's always very important to talk to an experienced independent agent who could help preassess your situation and determine the best carrier to start your application.

Please contact us if you believe you have a not that straightforward case so we could discuss and find the best carrier for you.

10 Questions to Ask Before Buying Your First Home

4/16/2017

Q. How to be certain I am ready to buy a home?

A. Answer the 10 questions below to determine your readiness to buy a home:

Are you sure you want to buy a home? Yes = 1 point.
Do you anticipate any large expenses in the next two years, such as buying a car or having kids? No = 1 point.
Do you expect to stay in your current job for the next two to three years? Yes = 1 point.
Do you expect your job to stay in the same location for the next three to five years? Yes = 1 point.
Do you know how much you can realistically afford to pay for housing? Yes = 1 point.
Do you have a favorable credit record? Yes = 1 point.
Do you have enough money for the down payment and closing costs? Yes = 1 point.
Have you been prequalified for a mortgage so you know how much you can borrow? Yes = 1 point.
Will your existing debt reduce your ability to qualify for a mortgage? No = 1 point.
Is the amount you can borrow enough to enable you to buy a home you can truly enjoy? Yes = 1 point.

Should You Rollover Your Money from 401K to Rollover IRA? - Cons

4/15/2017

In our last blog post, we discussed the Pros of Rollover IRA, now the Cons.

The Cons of Rollover IRA

a. Lose penalty-free withdrawal right
If you have a 401k plan and leave your job in the calendar year you turn 55 or higher, you can take penalty-free withdrawals from that employer's 401k plan. But if you roll that money into a Rollover IRA, you will have to wait until you turn 59.5 to avoid the penalty.

b. Lose RMD protection
If you keep your money in 401k and keep working after 70.5, you do not have to take RMD from your 401k account. Unfortunately if you roll your 401k to a Rollover IRA, you will have to start taking RMD from the time you turn age 70.5.

c. Lose lawsuit protection
Assets in 401k are shielded from lawsuits, which means if someone wins a judgement against you in a personal injury lawsuit, that person can't touch your 401k plan. IRAs do not offer such protection, they are generally protected from bankruptcy, but state laws vary with respect to other types of claims.

d. Create more tax complications
If you roll your 401k into a Rollover IRA account, and later on want to take advantage of the backdoor Roth IRA by contributing after-tax dollar to a IRA then convert it to Roth IRA, you will face a more complicated tax situation - normally the backdoor Roth IRA conversion has no tax issue because your contribution is after-tax money, but now that money has to be lumped with the money inside your Rollover IRA account and recalculate the portion that is tax free, which depending on how much money you have in your Rollover IRA, the tax-free portion could be a very small percentage.

How to Track the Essential Routines?

4/14/2017

Q. What are the good ways to track my bills, loyalty points, deductible expenses, etc.?

A. Here are some of the best tracking apps and tools that will save you time and money -

1. Track bills
You can use Mint.com to set up auto pay for multiple bills, no fee if you are paying with a bank account.

2. Track loyalty programs
You can use Awardwallet.com, free, to track your loyalty points, miles, and other rewards in nearly 700 loyalty programs.

3. Track credit scores
You can use CreditKarma.com to track your TransUnion and Equifax credit reports.

4. Track Deductible expenses
You can use Deductible, a program available through Turbotax to track your deductible expenses and donations.

5. Track passwords
You can use Dashlane.com to store and encrypts your passwords and fills them in automatically when you are browsing the web. The free version works for 1 device, and $40 a year covers multiple devices.

Should You Rollover Your Money from 401K to Rollover IRA? - Pros

4/13/2017

Q. I recently left my job, how should I deal with the 401(k) from my previous employer?

A. When you leave a job, you have the option to rollover your 401(k) or 403(b) money to a Rollover IRA account. But should you do it? We will provide a detailed analysis the Pros and Cons of Rollover IRA here.

Pros of Rollover IRA

a. More investment options
Most 401k or 403b plans have very limited investment options. If you roll your money to a Rollover IRA account, you can pretty much invest in any investment products you like, especially for people near or in retirement ages, you can access any bond funds which are very limited in most 401k or 403b plans.

b. Better investment options
While many 401k/403b plans have low cost funds, some plans have costly funds. Companies are required by law to disclose the fees they take out of your account to pay for administrative fees, you can review your quarterly statements for details. The average fee for stock funds is 0.68% and for bond funds is 0.54%.

c. Easier account management
If you have changed several jobs, you might have several 401k accounts left behind. Rolling them into one Rollover IRA account could really simplify your account management so you won't leave anything behind.

d. Flexibility to withdraw
Some 401k plans have very limited withdrawal options, often "all or nothing". In such cases, rollover IRA accounts can provide you greater flexibility if you need money. In addition, even your 401k account allows partial withdrawals, you cannot specify which funds to sell, instead the plan takes an equal amount out of each of your investments. In Rollover IRA accounts, you can sell whatever you like to sell.

e. Avoid higher fees
Some plans charge former employees higher fees, for example, higher administrative fees for some funds, which makes the low cost fund options less attractive, if such options are available.

In our next blog post, we will discuss the Cons of Rollover IRA.

4 Signs A Couple May Benefit From Seeing a Financial Therapist

4/12/2017

Q. What are the signs a couple might have a bad financial relationship?

A. Here are 4 signs that indicate a couple might not have the best financial relationship -

Argue, but never resolve, a financial issue. It's okay to have an argument, but a sign of trouble if an issue never resolves and worse becomes destructive to one another.
Play the blame game. Blame the other person indicates lack of recognition of the person's own contribution to the problem and the couple could do things differently to resolve the problem.
One person dominates everything. When only one partner contributes and dominates the whole planning process, it could be a sign of power and control dynamic which prohibits the other partner from participating.
Display uncontrollable worry, fear, anxiety or depressive symptoms around money. Either one or both partners display such symptoms are good indications of the need for external help.

How can you find a good financial therapist?

You can start by searching the Financial Therapy Association which has a nationwide network of providers.

6 Professionals Who Can Save You Money and Time

4/11/2017

There are some tasks you are better off to let a pro do it for you, you will actually save time and money. Below are 6 of these professionals -

1. Certified Public Accounts (CPA)
A competent CPA can guide you through complex tax-planning issues and prepare your tax return. You can search a CPA who is a personal financial specialist at American Institute of CPAs (AICPA.org).

2. Financial Planners
A financial planner can help you organize your financial matters. The fee structure is typically hourly, annual, or project-based. You can search a financial planner at National Association of Personal Financial Advisors (NAPFA.org).

3. Professional Organizers
A professional organizer could help you learn the skills and develop a system to stay organized. It's typically hourly fee based. You can search a professional organizer at National Association of Professional Organizers (NAPA.org).

4. Health Insurance Claims Specialists
A health insurance claims specialist can help you navigate the insurance system, find errors in bills, and contest denials of insurance claims, when you have a significant medical bill in front of you. The hourly fee is typically $75-95 per hour. You can search a health insurance claim specialist at Alliance of Claims Professionals (claims.org).

5. Landscape Professionals
You can hire a landscape professional to do an one-time project, for example, selecting low-maintenance plans or for ongoing lawn care. You can find a landscape professional at Loveyourlandscape.org.

What Is The Difference Between Market Timing and Rebalancing?

4/10/2017

Q. What's the difference between market timing and rebalancing?

A. Market timing is you "think" what the market might do in the future, therefore you take certain actions to your portfolio.

Rebalancing is you "look at" what the market has done in the past, then readjust the percentage of different asset classes in your portfolio to your original goal.

3 Most Important Things in A Successful Long Term Investing

4/9/2017

Q. What is the most important thing in investing?

A. There are 3 most important things in having a successful investing -

1. Owning a globally diversified portfolio.

2. Investing for the long term.

3. Rebalancing periodically.

Could My Home Insurance Application Be Denied Because Previous Owner Has Filed Too Many Claims?

4/8/2017

Q. If a house's previous owner has filed many claims in the past, and I am buying that house now, could my insurance application be denied?

A. Yes, if you are buying a house, but the prior owner of the house has filed many claims in the past, you could be denied even though you never filed any claims yourself!

So it's a good idea to ask the house seller about their insurance claims history on the house before you buy it, so you could make sure that you can buy insurance and won’t have to pay higher-than- normal costs.

5 Tips to Lower AMT Tax

4/7/2017

Q. Any tips on how to lower AMT tax?

A. Here are 5 tips offered by TurboTax to lower your AMT tax -

1. Delay Your Fourth Estimated Tax Payment
You can limit your risk of having to pay AMT every year by timing certain events.

For example: if you are paying AMT this year, and you pay state or local estimated taxes, delay making the fourth payment until after December 31, 2017.

Want to take an even more conservative approach toward avoiding AMT? You can make your fourth estimated tax payment after December 31 each year.

2. Sell Incentive Stock Options
If you receive incentive stock options (ISO), sell them in the same year you buy the stock if the stock price falls before year-end. You'll avoid having to add back the difference between the amount paid and the fair market value to the AMT calculation.

3. Split Payment of Large Medical Bills
Some of the medical bills you're able to deduct on your tax return are added back for AMT purposes. You may end up paying additional tax (AMT) as a result. A suggestion: pay any large medical bills you have over two different years, rather than one.

4. Have Employer Pay Business Expenses
Consider asking your employer to pay some of your employee business expenses in exchange for a lowered salary. Doing so will lower your adjusted gross income (AGI) and your regular income tax. Plus, it will reduce the possibility that you'll have to pay AMT.

5. Group Your Deductible Expenses
If you cannot itemize deductions every year, try to group your deductible expenses (such as taxes, donations, mortgage interest, and so forth) into alternating years.

5 Tax Benefits of Annuities

4/6/2017

Q. Does annuity have any tax benefits?

A. Yes, annuities have 5 tax benefits -

1. Tax-Deferred Growth
The money in your annuity grows tax free as the interest compounds. This creates an attractive accumulation opportunity because your money is able to grow on a yearly basis without being stunted by income tax payments.

2. Taxes are Levied on Profits Only
Unlike most other investments, taxes are only paid on gains when they are withdrawn. This alleviates any worries about paying taxes on dividends, interest or capital gains associated with most other financial products.
3. Reduce Taxation of Social Security Benefits
Up to 85% of your Social Security benefits may be subject to federal income tax depending on your level of provisional income. Annuities generate tax-deferred income, which has no impact on your Social Security benefits, as long as the money stays in the annuity. Other "safe" products like CDs, savings and money market accounts and municipal bonds contribute to provisional income, which could drive up your benefits' tax.

4. Tax Reporting and Payment Flexibility
When you retire, you will likely to be in a lower tax bracket. If you wait until retirement to take distributions, you are essentially able to defer tax payments until it becomes more favorable to you. No reporting is required as long as income isn't taken out of the annuity.

5. Offsetting Gift, Estate and Income Taxes for Beneficiaries
You can use a single premium immediate annuity (SPIA) with a life-only payout to pass on assets you won't need in retirement to heirs tax-free through an established trust.

Copyright © 2013 - 2022 PFWise.com, All Rights Reserved.
IMPORTANT DISCLOSURES
PFwise.com does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that any material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

About Us | Contact Us
中文