Blog Archives - PFwise.com

What Life Expectancy To Use When Plan My Retirement?

5/31/2016

Q. I am doing retirement planning, what's the life expectancy I should use?

A. Many standard retirement planning assume living to age 100. But if you want a more precise number, you can use one of the following free online tools:

Livingto100.com
You answer a series of questions and it will give you the answer.

Myabaris.com
Its interface is more user-friendly and has fewer questions, but it does take into account your socialeconomic status.

Bluezones.com
It claims to be the most accurate life estimator available, although you have to provide an email to proceed which should be fine as the other tools will require your email address in the end of the process anyway.

Should I Hold Cash In My Investment Account?

5/30/2016

Q. Should I hold cash in my investment account as part of my investment portfolio?

A. When it comes to investment, the answer is always it depends, because different investors' situations are different.

First, if you are using an advisor to manage your investment account and that advisor charges an asset-based fee, then you are paying someone for nothing, because cash doesn't generate any return for you!

Next, if you need the cash for emergency use, or anticipates a need for a large amount of cash use, such as college expenses soon, you should put the cash in a savings account so you can gain immediate access to it.

Finally, the key question - how much cash to hold in an investment portfolio?

There is not set answer to this question - some people believe holding cash could enable you to buy bargains when they become available, so you don't have to liquidate your current holdings which might not be a opportune time to do so.

However, other people think differently, they believe cash is never a good asset for asset diversification, to manage portfolio risks, you want to hold assets moving in different directions, but cash always remains as, cash, with no return, and overtime is destined to underperform even inflation.

Other factors to consider include the size of your portfolio and your investment time horizon.

How Could A Small Investor Become a Venture Capitalist - Part E

5/29/2016

So far we have discussed many of the key actions a small investor needs to take before investing like a venture capitalist. The next natural question is - where to find those small startups looking for equity investors?

You can bet that many platforms will emerge to act as a bridge between small investors and young companies. Below is an incomplete list:

1. AngelList is a US website for raising equity or debt investments for startups. Only accredited investors can invest at the time of writing.
2. Early Shares is an Equity Crowd Funding Platform that supports American Small Businesses.
3. Crowdcube is an equity-based UK crowd funding platform.
4. Fundable is a crowdfunding platform that offers both rewards-based and equity-based campaigns for small businesses.
5. Seedrs is an equity crowdfunding platform for discovering and investing in seed-stage startups, based in the United Kingdom but open to investors and entrepreneurs throughout Europe.
6. CircleUp is an equity-based crowdfunding site based in San Francisco.
7. Crowdfunder is a global social network for equity and contribution crowdfunding for small businesses, startups and social enterprises.
8. WeFunder.com “We help everyone invest in startups. It’s like Kickstarter, but with equity.”
9. Equity Net “is the original and only patented crowdfunding platform. It is used by thousands of entrepreneurs, investors, government entities, business incubators, and other members of the entrepreneurial community to plan, analyze, and capitalize privately-held businesses.”
10. RockThePost is an equity crowdfunding platform that connects high quality entrepreneurs with accredited investors interested to invest in exciting new start-up companies.

Indiegogo and Kickstarter are two of the largest crowdfund sites, but they have not officially moved into the equity crowdfunding space at this time.

Should I Invest in Both Coverdell and 529?

5/28/2016

Q. Should I invest in both Coverdell and 529 for my child's education expenses?

A. If your income falls within the limit, you could invest Coverdell first, which has an annual limit of $2,000 per student. 529 has a much higher limit.

When comparing Coverdell and 529, each has its own pros and cons. Some major ones are below:

Coverdell gives you more flexibility in managing how your money invests, you could buy stocks, bonds, ETFs, etc. While 529's investment options are a lot more limited.
Coverdell money can be used for private schools as well, and 529 is only limited to colleges.
Coverdell counts more (20%) than 529 (5.6%) at time of financial aid calculation.
Coverdell becomes the child's property when he or she turns to 18.

For other comparisons, please visit our earlier blog posts on Coverdell and 529, as well as 529 vs. Whole Life as education funds.

Does 529 Cover Off-campus Housing Costs?

5/27/2016

Q. Does 529 cover off-campus living expenses?

A. Yes, but with a limit.

Money in 529 accounts can be used to pay for off-campus housing expenses, but only to the amount the school charges for room and board, and the student has to be a half-time or full-time student.

Which IUL Provides The Highest Supplemental Retirement Income?

5/26/2016

Q. I want to use IUL as a source of supplemental retirement income, in addition to my 401k savings. Which IUL product best accomplishes that goal?

A. If your goal is to fund IUL till retirement time, then take maximum tax-free loans out of IUL during your retirement time as supplemental retirement income, then North American's Builder IUL has the highest loan amount to support your goal, see the IUL comparison table below.

If you have any questions, or would like see a customized illustration for your unique situation, please contact us.

How Could A Small Investors Become A Venture Capitalist - Part D

5/25/2016

In our last blog post, we discussed the risk of investing in private companies. Because of these high risks, it is extremely important for you to do a good due diligence.

Now we will discuss the steps you should take to do the due diligence.

Understand the Business
Remember, you are invest in the business, not an attractive product or even just a great idea! If you have expertise in the same industry, you probably could quickly see through the marketing promises and assess the chance of success of this business in the future.

You should look for data about current performance of this business, its assets and liabilities, its funding level and sources. You should also inquire about the company's structure, license, etc.

Understand the Management
You want to see competent management team in place, with skin in the game too! You want to see the management team's business plans, and assess if the business plan is realistic or not.

You also want to investigate if there is any legal issues concerning the business or its management team members.

Understand the Offering
Is the offering legal? Even with JOBS Act, there are still strict regulations on private companies' equity offerings. What's the use of the funds? What rights do you have as an investor? What if anything goes wrong?

If the offering is through a crowdfunding portal, per regulation, there is no assessment available from the listing site, it's simply a channel. But if the listing is at a broker-dealer site, that broker-dealer might perform a certain level of due diligence already and issues an opinion on the offering.

The Bottom Line
It's not easy to earn extraordinary return! By participating a private market investment, you have a chance to strike gold, but also have a chance to lose everything, or hold the bag for a long time to go!

In our next blog post, we will show a list of popular websites for small equity investors and small businesses looking for equity investors.

How Could A Small Investors Become A Venture Capitalist - Part C

5/24/2016

In our previous blogpost, we discussed some key reasons you want to invest in private companies. However, you need to understand investing like a venture capitalist is full of risks. Now we will discuss several of the downsides.

First, high risks!
Extraordinary return means extraordinary risk, because in a rational investment world, risks and returns always go together. Young companies have high mortality rate, especially during the first 3 years. You should be prepared to lose everything you put in! So never invest more than you can afford to lose.

Second, lack of liquidity
Unlike public companies with stocks traded publicly, it will be very hard for you to cash out your investment in a private company without a big discount to its true value.

Third, long wait
Young companies' businesses are still in forming stage, which means you will likely not seeing dividend payouts anytime soon, and you have to hold your investment in a long time, typically several years or longer.

In our next blog post, we will discuss how to perform due diligence like a venture capitalist.

Perspective on Market Moves - May 23 2016

5/23/2016

How Could a Small Investor Become A Venture Capitalist - Part B

5/22/2016

In our last blog post, we shared the news that from May 16, almost everyone could become a venture capitalist. But why do you want to invest like a venture capitalist?

First, the return!
Put it simply, because you want to chase an extraordinary return. With public markets, your return (if there is any) is typically limited. However, you could strike gold if you are an early stage investor for the next Google or Facebook!

Second, diversification
If you have a large portfolio, you need diversification, and private companies' performance tend to have little correlation with public stock market's performances.

Third, expertise
You will be in the driver's seat by diversifying to industries and companies of your choice, preferably in areas you have expertise.

Next, we will discuss what are the downsides of investing like a venture capitalist.

How Do I Qualify As An Accredited Investor?

5/21/2016

Q. How to qualify as an accredited investor?

A. To qualify as an accredited investor, you must meet certain income and/or wealth requirements by the SEC. These qualifications include the following:

An investor with earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, or
An investor that has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
Any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person, or
Any entity in which all of the equity owners are accredited investors.

Should I Pay Off Mortgage Before Retirement?

5/20/2016

Q. Should I payoff my mortgage before retirement?

A. There is no one clear-cut answer as it depends on every family's unique situation.

Here are some of the important factors to consider before arriving at your final decision:

Mortgage interest rate: the lower the interest rate (remember the interest is deductible too), the less incentive you have to payoff it earlier, especially if your investment return is higher than mortgage interest rate.

Source of funds in retirement: if most of your retirement funds is in 401k, you will incur a hefty tax by withdrawing funds from 401k. It's unwise to payoff mortgage by withdrawing money from qualified retirement plans. If you have ample liquid cash outside of retirement accounts, then it's okay to consider paying off mortgage early.

Guaranteed income in retirement: if you don't have a large amount of guaranteed income in retirement, such as pension, social security, and annuity, that is more than enough to cover mortgage payment and other expenses, then it's a good idea not to pay off mortgage.

How Bad Emotion Will Do To Your Investment Return?

5/19/2016

Q. How harmful could an investor's emotion to the investment return?

A. See the following chart which compares different investments' returns between 1985-2014. An average investor's return couldn't even beat inflation! Fear and greed are enemy # 1 for most ordinary investors!

How High Are Marginal Income Tax Rate In Your State?

5/18/2016

How to Get the Most Out of Retirement Savings?

5/17/2016

Do you know how to get the most out of your retirement savings? Hint, you need to think from tax perspectives.

The Transamerica flyer below is a great summary of the tax diversification strategy every family should look into when plan their retirement savings.

What to Focus On In a Disability Insurance Policy?

5/16/2016

Q. What should I focus on when shopping for a disability insurance?

A. You should look for the following in a disability insurance policy:
1) How long is the elimination period (in other words, how long you have to wait before getting paid benefits)?
2) How long is the benefit period (in other words, how long does the insurance company pay you the benefits)? Common benefit periods are 2-5-10-20 years or age 65 or age 67
3) What is the rating class of your occupation (1A-5A)? The lower the number, the higher the premium.
4) How much does the benefits reduce when you become eligible for Social Security benefits (there are riders to increase that reduction)?
5) Is there any opportunity to buy additional coverage in the future without evidence of insurability?

It's best to use an experienced independent broker to find the right coverage at the best price for your unique situation. Please contact us if you need help.

How Could a Small Investor Become A Venture Capitalist - Part A

5/15/2016

Q. How could a small investor invest like a venture capitalist?

A. Before May 16, 2016, businesses are not permitted to sell shares to individuals without registering with the SEC or having publicly traded stocks.

Private companies have been offering rewards, such as new products, to individuals via crowdfunding websites, or take loans, from online crowdfunding lenders. But generally it is illegal for private companies to advertise equity offering or sell shares to the public.

JOBS Act
The Jumpstart Our Business Startups Act (JOBS Act) will change all of that! Its final rules will be enacted on May 16 and give small investors a chance to become venture capitalists!

Two Investor Classes
The key reason for regulations is to protect small investors from scams. Small investors will be divided into two classes with different allowed investments in private companies.

People who make more than $100,000 a year and have a net worth over $100,000: investors in this class will be allowed to invest up to 10% of the lesser or their annual income or net worth, with a ceiling of $100,000.
People not in the above class: can invest to the larger of $2,000, or up to 5% of their annual income or net worth, whichever is less.

Why do you want to invest like a venture capitalist? We will analyze several reasons in our next blogpost.

Which State Is the Most Tax Friendly?

5/14/2016

Q. For retirement consideration, which state is the most tax friendly?

A. The following map is Kiplinger's top 10 tax-friendly states:

Kiplinger also did other tax-related studies at state level and showed the results on a map, see link here.

What is Transfer on Death?

5/13/2016

Q. What is transfer on death?

A. "Transfer on Death" is what you tell your investment accounts' custodian (e.g. Fidelity) or transfer agent about whom (beneficiary) should receive your assets upon your death. It provides an immediate and cost-free benefits to your heirs as they will receive your assets without having to go through probates, and it costs you or them nothing.

Note that such accounts are still subject to estate taxes, creditors, etc., but they bypass the probate process, moving assets to your beneficiaries will be immediate upon proof of your death and survivorship.

How To Create Will Inexpensively

5/12/2016

In our last blog post, we discussed why it's important to have a will. Now we will discuss how to create a will on the cheap.

No Cost Way
Unless your family situation is very complicated, for most families, you could create a will cost free. For example, you can use willing.com to create a basic will FREE. Although more advanced version will cost you money.

Low Cost Way
Instead of hiring an expensive lawyer to draft your will, you could do it yourself by using legal sites such as Nolo and LegalZoom to create a will. For example, Nolo's most popular WillMaker just had a 2016 Edition available.

Other than Will, what other simple yet powerful action you should take as part of legacy planning? Get transfer on death done!

Why Do I Need A Will If Prince Does Not Even Have One?

5/11/2016

Q. I heard reports that even Prince doesn't have a will, why should I do?

A. It's estimated that Prince has a net worth of at least $300 million, if none of his advisers end up turning up a will that Prince made prior to his death, this great oversight in his legacy planning will be very costly and frustrating.

Why do you need a will even if you are not Prince?

Because a simple will could go a long way toward avoiding headaches and tax complications for the loved ones you left behind when you die!

A will specifies how your assets will be distributed among your family members and charities. If you don't have a will, your state law will take over, you essentially defer to a probate court to distribute your assets. This opens door to potentially costly legal contention among your rightful heirs, and even someone whom you would never intended to benefit from your lifetime hardwork, because any third party could petition the court by filing a claim to your estate and hoping to receive a share!

So, is there an easy, or free way, to create a will? Yes, we will discuss in our next blogpost.

4 Websites to Learn to Code On Your Own Time

5/10/2016

4 Well known sites with slightly different focuses for different people who want to learn code on own time:

Coursera
If you want to expand your knowledge on many different areas, including computer science, this is the one. Coursera is a for-profit open course organization offering free and low-cost online classes from hundreds of universities.

Codecademy
If you want to switch career and learn coding on the cheap, this is the one. Codecademy offers user-friendly online coding classes range from novice level to advanced level. It's totally free!

EdX
If you are looking for online courses from a famous university, this is the one. EdX is an open-source online-course platform from Harvard and MIT.

General Assembly
If you want to learn in a traditional classroom setting, this is the one. General Assembly offers 8- to 10-week-long immerseive courses in web development, data analytics, etc at 15 locations.

Free Websites to Find Undervalued Stocks

5/9/2016

Q. Is there a free website that could help uncover undervalued stocks?

A. Yes, there are two websites that are free and offer tools for investors to check a stock's valuations by using the popular discounted cash flow method, and other methods as well.

Moneychimp.com
Moneychimp has an easy to follow value investing link which will take you step by step to find the value of a stock - you plug in the numbers you believe appropriate.

Valuewalk.com
Valuewalk has a collection of stock screeners which will enable you to run different stock value screen methods, including the Graham-Dodd screen method, Valuation stock screener, etc.

Rollover 401K to IRA to Generate Guaranteed Lifetime Income

5/8/2016

In our last blog post, we discussed the pros and cons of rolling over 401k to an IRA. One drawback of 401k is, unlike pension, lack of guaranteed lifetime income distribution option.

But if you rollover 401k to IRA, you could use the IRA money to purchase an annuity and create guaranteed lifetime income by yourself.

A lifetime income guarantee offers two benefits most retirees need:

a) Protect you from market volatility - if your money is invested in stock market or even bond, in a market crash, both stocks and bonds could lose money;

b) Protect you from longevity risk - you don't have to worry about outliving your money.

The bottom line
It will be wise to allocate a portion of your IRA money to create a guaranteed lifetime income. Please contact us if you want to explore different annuity options.

Rollover 401K to IRA or Not?

5/7/2016

Q. I am retiring soon, should I rollover 401k to IRA or not?

A. There are pros and cons to rollover your 401k to IRA:

Cons rollover 401k to IRA

401k assets are protected from claims from creditors, but IRA asset usually not
No 10% penalty if you withdraw money from 401k if you leave your job between 55 and 59.5, but not from IRA
Your former employer might offer some low cost funds that not normally accessible elsewhere

Pros rollover 401k to IRA

Put all your assets in one place, easier to manage
More options for investment, although might be easier to lose money if you are not careful
Avoid high fees if your former employer's 401k choices are very expensive

There is one more important benefit by rolling 401k money into an IRA - so you could create guaranteed lifetime income!