LWM Weblog

Everybody wants your rebate money!

Well, that's not even true.  The IRS doesn't want it.  They just want you to spend it.  The good news for them is that there is no shortage of companies out there helping you do so.  It's ironic that we, as a country, continually berate our citizenry for being poor savers (as compared to Japan, for example), yet when Uncle Sam is dolling out a few extra bucks, we're being unpatriotic if we try to save any of it!

I recently heard a story on NPR that the IRS is actually sending some people goods in lieu of a rebate check.  They are identifying people with high debt levels whom they feel are likely to blow the money on such foolish things like debt repayment rather than some shiny new toy.  In the story, the IRS sent a couple in Arizona a new air conditioning unit.  You know, because they're in Arizona.  So, instead of $1,200, they get higher utility bills.

Journalist Request: Essentially a question of tax diversification

Here was the reader question that was asked by Raj Sharan, a financial writer for the Christian Science Monitor:

"I currently contribute about $20,000 a year tax deferred into a 401(k). My employer does not contribute. Since in the future (I'm 2 years from retirement) I'll roll this over into an IRA, would it be better to pay taxes now on the $20,000 and just invest in a regular account? Otherwise, when the money is withdrawn from an IRA, I'll be paying taxes on the entire investment as regular income, not just on the capital gains. I'm assuming that my tax bracket will be the same at retirement. A Roth 401(k) seems like a better deal, but my employer doesn't offer one."

Most investors, after relatively little study of investing, realize that diversification is an important principle.  "Don't put all your eggs in one basket!"  Pretty simple, right?  Of course, loading up on tech stocks in the late 90s aside, most investors get this on some basic level.  True diversification of non-correlating asset classes, without biases towards large U.S. stocks, is rare however.

Even if investors truly understand the principles of investing, another type of diversification has to be considered, especially as investors approach retirement:  Tax Diversification.

So, here is my response to the question:

Credit Crunch - What's it all about?

I seem to remember hearing in a marketing presentation that the normal attention span for a “pitch,” once interest is established, is around five to ten minutes.  Never to be out done, our media tries to answer complex questions with ten second sound bites.  So, it is not surprising that there is a great deal of misunderstanding about our current stock market decline, its causes, and its eventual recovery.  Allow me to spend the next five to ten minutes summarizing my interpretation of the issues.

First, the ten second media version is that the current crisis is the result of sub-prime mortgages.  While certainly a major piece of the puzzle, what is seldom discussed is where that piece falls and the short and long term ramifications.

Eric Toya is Quoted in the L.A. Times

This one is really funny.  Los Angeles Times Personal Finance Writer, Kathy Kristof, calls our office last Thursday because she is working on a story about the high cost of high school Proms, and wants to talk with Scott Leonard about any advice he might offer to clients.  In particular, she was looking for a financial planner with high school aged kids.  Instead she got me!

I explained that I do not have kids, and certainly not ones in high school.  However, as I am in the middle of planning a wedding that falls in the middle of Prom season, I can share my experience with elevated prices for limos, flowers and reception venues.  We chatted a bit about when I was in high school, and somehow something I said there was quotable!

Check it out:

"Prom Night Need Not Break the Bank," by Kathy M. Kristof, Personal Finance Writer for the Los Angeles Times.

I'm pretty close to the end of the article.  And for the record, it was Mom's four year old Toyota.  So, while not an uncle's Mercedes, still a far cry from my 1978 Ford Fairmont Station Wagon with fake wood paneling on the side!

"Are you PERSONALLY in a recession?"

I had this conversation with a friend recently:

Friend:  "I hate my cell phone.  I want to get a new one, but I can't justify the purchase because we're in a recession."

Me:  "I'm not sure about the economy, but are you in a recession?"  (I asked this knowing that he has a stable job, and is a conservative spender)

Friend:  "Well no, but I guess I'm a worrier."

As it turns out, he's not alone.

Reader Poll: What percent of your income do you give to charity?

Studies abound show that the amount that people donate to charity is correlated (not necessariy positively) to their household income, age and other demographics.  There are some interesting articles about this topic that I will write about later, but for now I wanted to take a poll among readers.  What percent of your income do you donate to charity?

How do you choose which charity gets yor donations?

Giving by individuals continues be dominate the landscape of charitable giving.  Individual giving consistently ranks somewhere around 75% of all charitable giving in America.

So, the question is how, out of approximately 1.4 million different charities to choose from, do you select whom is going to get your charitable gifting dollars?

People generally give to those charities with which they feel a personal, emotional connection.  This is why universities, religious organizations and hospitals are continually among the most successful fund-raisers.  You feel connected to your alma mater, your church, and the hospital that treated you or someone you love very well through difficult times.

But what are the other ways that people determine which charities to support?

“Stocks Tarnished by ‘Lost Decade:’ U.S. Shares in Longest Funk Since 1970s”

That was the headline in a Wednesday, March 26th Wall Street Journal, article by E.S. Browning.  The article made the following additional claims:

“The Stock market is trading right where it was nine years ago.  Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.”

“…the S&P 500 has risen an average of just 1.3% a year over the past 10 years,…it has fallen 0.37% a year [for the past nine years] and for the past eight, it is off 1.4% a year.”

In reading this, I could not help but get a little angry, for two reasons.  First, the information is plain wrong, or very misleading at best.  Second, once again the media’s failure to report the whole story is letting the money management world off the hook.  Let me address these issues one at a time.

Do you make charitable contributions to your alma mater?

RING!  RING!

Me:  "Hello?"

Voice on the other end:  "Hello, may I speak with Eric?"

Me:  "You got him."

Voice on the other end:  "Hi Eric this is Jimmie from the USC Annual Giving office.  I'm currently a business major, about to finish my junior year."

Me:  "Cool.  I was a business major."  (of course, they already knew that)

Jimmie:  "That's great.  Did you live on campus?  I live in Webb Tower."

Me:  "No way, I lived in Webb Tower!  In fact, I was an RA there."  (and of course, they already knew that too)

Jimmie:  "You should see the remodeling that they have done to the place.  The whole building has wireless Internet.  I love living there."

Me:  "Glad to hear that.  I had some great times in that building."

Jimmie:  "Of course, we rely on contributions from alumni like yourself to continually update and modernize the campus facilities, as well as attract world class faculty.  We thank you for your generous donation last year.  Can we count on a larger contribution this year?"

Me:  "Sure, what the heck."

This morning, I read an article entitled, "The Key to Alumni Giving" in The Journal of Queen's University in Ontario, Canada.  It is an interesting insight to the behind the scenes work of the University fundraisers at their various levels.

What is Planned Giving?

The concept of planned giving is anything but new.  In fact, my guess is that it has been going on for a few centuries.  Recently, however, there seems to be a buzz in the non-profit, fundraising community around planned giving.  "What is it?"  "How does it work?"  Most importantly, "how do we get some of it?"