In This Issue
Featured Article
Understanding REITs
Curt's Quick Comment
Special Needs Trusts
From the Financial Presses
Quick Links
Featured Article
So...Pretty interesting week in the market.  Where is it going?  Nobody and I do mean Nobody knows where it is going in the next 6 months.  I do have a pretty good idea which direction it will move in the next 10 years though.  And remember, there is more than one market.  For instance, so far today US Large Cap stocks are down but US Treasuries are up.  Diversify... 
  
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Financial Strategies
Planning Techniques, Procedures and Guidance for Military Professionals
Greetings!

Wow, it seems like July went fast (at least when it comes to this newsletter).  I should have checked the date on the First Friday of August when I decided to delay the July issue by a week.  Lesson learned...

This month I start out with a little bit of Investing 101.  I cover Real Estate which may be an appropriate asset for your portfolio.

The second article covers Special Needs Trusts.  Those of you who have heard me speak know that I don't recommend that you automatically take SBP for a Special Needs Child.  The alternative is a Special Needs Trust funded either with your assets or a Life Insurance Policy.  Even if you don't have a special needs child, please read the article...especially if you are on Active Duty.  There are plenty of barracks lawyers out there that will advise that families with special needs children take SBP for the child.  There needs to be a competing voice.

Do you own or dream of owning your own business?  If you do, you have some unique retirement plan options.  That topic is addressed in an article from the financial presses.  Also, speaking of retirement, the other article from the financial presses talks about hurdles/obstacles to reaching your retirement goals.

Oh...and my Quick Comment talks about Cyber-security and how you might be sabotaging some of the protections your financial institution has put in place.

Have a great August and talk to you after Labor Day!...hard to believe it is just around the corner.

Curt
Curtis L. Sheldon, CFP�, EA, AIF�
C.L. Sheldon & Company, LLC
(703)542-4000 or (800) 928-1820
Understanding Your Investment Options: REITs

 

One of the assets classes you might want to consider in your overall asset allocation is Real Estate.  One of the ways you can access Real Estate in your portfolio is through Real Estate Investment Trusts also called REITs (pronounced like beets).

 

What are REITs?

 

REITs, like many other investment options are a basket.  In the case of REITs the basket holds real estate and normally it holds commercial real estate.  REITs can also hold mortgages.  The REITs then collect income in the form of rent and capital gains if the property appreciates or in the case of REITs that hold mortgages the income will include interest payments.

 

How can I own REITs?

 

You can purchase individual REITS, much like stocks.  There are listed and non-listed REITs.  Listed REITs are traded on exchanges.  Non-listed REITs are not traded on exchanges and can be difficult to sell.  To me, because of the lack of liquidity, non-listed REITs are not a great alternative for most people.

 

You can also own REITs through Mutual Funds and ETFs.  For instance you can purchase a REIT Index Mutual Fund or ETF through Vanguard (not a recommendation).  This investment owns a number of REITs.

 

What is the Advantage of owning REITs?

 

REITs can provide additional diversification and risk reduction in a portfolio.  Real Estate is not normally closely correlated with the stock market.  The correlation between Real Estate and US Large-Cap Stocks (the S&P 500) is 0.60.  This means that Real Estate tends to move in the same direction as US Large-Cap Stocks, but not always.  Low correlation reduces risk and may even increase gains.  Here is an example from Morningstar...

 

Assume a portfolio composed of the following asset classes:

 

50% Stock

40% Bonds

10% Cash

 

From 1972 - 2013 the above portfolio would have returned an average of 8.6% with a Standard Deviation (how investor advisors measure risk) of 10.8%.

 

Now let's modify the portfolio to the following:

 

45% Stock

35% Bonds

10% Real Estate (REITS)

10% Cash

 

Over the same time period the modified portfolio would have returned an average 10.3% (1.7% higher) with a Standard Deviation of 10.4% (0.4% lower).  Investment alchemy...increased returns with reduced risk.

 

Any downsides?

 

Like any investment REITs have risk.  You can lose money investing in Real Estate (not that we need to be reminded about that).

 

The bigger issue though is taxation.  REITs produce a dividend income and here is the kicker...the dividends are NOT qualified.  That means they are taxed at your marginal rate which could be 28% or more.  So, you generally want to hold REITs in tax advantaged accounts.  401(k)s and Traditional IRAs would be good choices.

 

Wrapping it up

 

Real Estate can be an appropriate asset class to include in your portfolio.  Using REITs to access Real Estate can reduce the overall risk of a properly constructed portfolio and potentially increase the portfolio's return.

 

Do REITs make sense for you?  A complete financial plan will help you know for sure. 

Curt's Quick Comment
Are your Facebook posts sabotaging your on-line security?  I attended a cyber-security webinar yesterday and heard something rather interesting.  Apparently, on-line thieves can use your Facebook account to crack your on-line security questions.  Here is an example.  Suppose one of those irritating security questions on you on-line bank access is "What is the name of your dog?"  And...on your Facebook page you constantly talk about your dog Fido.  That can give on-line thieves the answer to the question.  According to the webinar, this routinely happens.  Might be worth being a little more "vague" with your Facebook posts...
Planning Spotlight: Special Needs Trusts

 

Millions of American families face the emotional and financial challenge of caring for a child with special needs. For these families, financial and estate planning must go beyond traditional goals to include for the child's current and future well-being.

 

In most cases, severely disabled children receive government assistance in the form of Supplemental Security Income (SSI) and/or Medicaid to help cover medical and long-term care costs. Such funding -- while a welcome benefit -- can complicate parents' ability to provide their own financial support. For instance, if a disabled individual receives an inheritance, he or she is likely to be disqualified from receiving federal government benefits until the inherited assets are depleted -- at which point there may be nothing left to pay for the extras, such as a vacation or a specially equipped vehicle. This is where a planning technique called a special needs trust can provide a flexible solution.

 

The Trust Solution

 

The purpose of a special needs trust is to provide funds to enrich a disabled individual's quality of life without jeopardizing his or her eligibility for government assistance. For this reason, care must be taken when drafting the trust document to specify that trust assets are to be used to meet the supplemental needs of the individual -- needs that go beyond food, shelter, clothing, and medical services.

 

A special needs trust can be established by a parent, grandparent, or other third party during his or her lifetime and/or at death. Such a trust can be incorporated into a will or established as a separate trust document. In the case of an accident resulting in a disability, a special needs trust can be created as a result of a court settlement.

 

In addition to providing a safe funding mechanism for supplemental expenses, a special needs trust offers other advantages -- namely professional investment management. Assets are typically invested and monitored for the exclusive benefit of the disabled individual.

 
The Trustee Question

 

Selecting a trustee of a special needs trust is a critical part of the planning process. As such, an individual (or institution) will be given significant discretion over the distribution of trust fund assets and must administer the trust properly to ensure that its purpose is carried out. In cases where parents may no longer be available or able to attend to their child's affairs, a corporate trustee can serve a valuable role in the management and oversight of trust assets.

 

Most banks and trust companies will serve as trustee of a special needs trust. Prior to hiring a corporate trustee, however, it is important to determine that the institution has both financial expertise in managing trust funds as well as experience working with individuals who have disabilities. A good solution may be to combine a sibling or other close family member with a corporate trustee. This approach helps to ensure that the personal needs of the child will be fulfilled and that the assets earmarked for his or her care will be properly managed.

 

In addition to including a special needs trust in the parents' plan, it is recommended that a clause be included in the parents' wills stating their preference as to whom the court should appoint as guardian if one becomes necessary once they are deceased. Often times, informal arrangements that worked while one or both parents were living need to be formalized after the parents pass away.

 

If you need help planning for the current and future well-being of a child or dependent with special needs, contact your financial advisor. Together with a qualified legal professional, they can help create a plan that provides quality lifetime care for your loved one.

 

This article offers only an outline; it is not a definitive guide to all possible consequences and implications of any specific trust option. For this reason, be sure to seek advice from knowledgeable legal and financial professionals.

 

Required Attribution

 

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

 

� 2014 Wealth Management Systems Inc. All rights reserved.  

From the Financial Presses


 

7 Retirement Hurdles You May Be Forced to Overcome

 

It's a marathon, not a sprint, to reach retirement, and you may find you still need to clear some formidable hurdles. Positioning yourself for the long haul could mean building flexibility into your retirement plan to accommodate emergency expenditures or adjustments in income or expenses. You'll need to take into account likely fluctuations in housing costs, taxes, health-care outlays, investments, and other items in your budget. Consider these seven obstacles and figure out how to get past each of them.  Read more Here...

 


4 Retirement Plan Options for Your Small Business

Do you own or manage a small business? If you do, the world is your oyster, at least when it comes to retirement plans. In a break from the not-so-distant past, there are now many options for small firms and even for sole proprietors to consider.  More Here...
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC 's current written disclosure statement discussing our advisory services and fees is available for review upon request.
 
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Military Professionals have unique financial benefits and unique financial needs.  If you think you would like some help developing your Financial Strategy please give us a call at (703) 542-4000 for a free initial consultation or for more information go to our website at .www.CLSheldon.com .