1. 2016 Year End Planning for Investors
Welcome to our 2016 Year-End Planning for Investors workshop!
We’re excited to see all of you here today!
Harold (Buddy) Hartmann, CPA
Certified Financial Planner ™
Christopher Calandra
Certified Financial Planner ™

2. Tonight’s Agenda Interesting Facts Market Update
Year-End Tax Planning & Strategies
Questions & Answers
Tonight’s agenda is straight forward:
First, we will begin with some interesting facts.
Then we will look at a quick market update..
Next, we will discuss some of the Year End Tax Planning & strategies you can consider, and we will then conclude with a questions & answer session.
Reminder: all examples provided are hypothetical and meant for illustrative purposes only. This is not specific or individual tax advice. Your individual situations will vary so please consult a tax advisor to address your specific situation.
All examples provided are hypothetical and meant for illustrative purposes only. State income tax laws can be different from Federal income tax laws depending on your state. Be sure to take this into account before making any decisions. Individual situations will vary so please consult a tax advisor to address your specific situation.

3. Five Key Areas of Financial Planning
Protection
Retirement Plan
Investments
Tax Planning
Estate Planning
Before we begin, it is always important to review that there are five key areas of financial planning:
Protection,
Retirement Plan,
Investments,
Tax Planning, and
Estate Planning
As a comprehensive financial planning firm, we try to always consider the impact of any recommendation we make on not just one, but all of these areas for our clients.
Tonight’s workshop will focus primarily on the economy’s outlook which could have an impact on some of your financial planning decisions.

4. Source: The New York Times, January 21, 2016
Long Term Planning
In 1980, there were 15,099 Americans 100 years or older. Today there are more than 72,000 and 80% of them are women.
In 1980, there were 15,099 Americans aged 100 years or more.
Today, there are more than 72,000 and 80% of them are women.
Source: The New York Times, January 21, 2016

5. Planning is Helpful
According to a study by Harvard professor David Wise and two colleagues, 46.1% of Americans die with less than $10,000 in assets.
Planning is helpful.
According to a study by Harvard professor David Wise and two colleagues, 46.1% of Americans die with less than $10,000 in assets.

6. It is often said that, “financial knowledge is power.”

7. 2015 was an interesting year for investors
Let’s take a quick look back at 2015.
2015 was an interesting year for investors. As this chart shows in 2015 the S&P P 500 index rose just slightly for the year. The year 2015 included oil price volatility and global worries that created turmoil in January and February. A huge slowdown of growth in China, the oil price collapse in late August, and a small Fed funds rate interest rate hike in December caused a lot of volatility.
Despite all that turbulence, the index closed slightly ahead of where it started.
Source: Yahoo Finance. All index returns exclude reinvested dividends. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. All data as of 12/31/15.

8. How have investors done?
Nearly 70% of investors lost money in 2015
So how did investors fare in 2015?
CNN money reported that in 2015 nearly 70% of investors lost money.
WHY?
(source: CNN Money)
Past performance is no guarantee of future results.

9. FANG Changed Investor Returns
Why? Because FANG changed investor returns.
Four stocks that are considered to be high price earnings stocks and therefore carry higher than average risk were a large contributor to 2015 index returns.
Facebook was up 34%
Amazon was up 118%
Netflix was up 134%
Google was up 45%
And, the overall market index was up around 1%.

10. If you remove these 4 stocks the market would have been down 4
If you remove these 4 stocks the market would have been down 4.8% in 2015.
So therefore, if you remove these 4 stocks the market would have been down 4.8% in 2015.
Very interesting….again, financial knowledge is power!
Source: Schwab

11. Source: Bigcharts.com, Sept 26, 2016
2016 Results (as of 9/26/16)
How are investors doing in 2016?
The year started strong, then “BREXIT”, the decision by England to leave the European Union in June, weakened performance. Since then, equities are doing okay.
Note: Past performance is no guarantee of future results.
Source: Bigcharts.com, Sept 26, 2016

12. October and November have historically produced the highest percentage of S&P 500 1% moves (up or down)
No one can fully predict the future and past performance is no assurance of any type of financial return. A long range study from 1928 to 2014 found that October is also the month of the year with the biggest share of 1% day moves (up or down) in the S&P. Volatility might return for investors and therefore we need to proceed with caution. We are carefully monitoring equity markets and interest rates so we can communicate with clients. Market volatility is a part of investing and instead of being worried by volatility, try to be prepared.
Source: Seeking Alpha 10/1/2016

13. Proceed with caution!
Still, investors need to proceed with caution, because markets go up and markets go down.

14. Is it time to revisit safety?
With bond yields near all-time lows, Richard Barley of The Wall Street Journal writes, "For a one-percentage point rise in yields, 10-year U.S. Treasury holders now face a drop in price of nearly nine percentage points."
Is it time to revisit safety?
With bond yields near all-time lows, Richard Barley of The Wall Street Journal writes, "For a one-percentage point rise in yields, 10-year U.S. Treasury holders now face a drop in price of nearly nine percentage points."

15. Where are interest rates?
Where are interest rates today?
As this chart shows as of late September the average CD and Money Market interest rates remained very LOW.
(READ CHART!)
Source:BankRate.com

16. The Fed keeps rates unchanged
In September, the Federal Reserve's rate-setting panel opted to leave interest rates where they've been since December of That means the federal funds rate, the rate at which banks and credit unions lend money to other institutions overnight, stays between 0.25% and 0.5%.
In September, the Federal Reserve's rate-setting panel opted to leave interest rates where they've been since December of That means the federal funds rate, the rate at which banks and credit unions lend money to other institutions overnight, stays between 0.25% and 0.5%.

17. When interest rates go up, do all bonds lose the same value?
No, changes in interest rates don't affect all bonds equally.
Generally speaking, the longer the bond's maturity (for example a bond that matures in ten years versus another that matures in two years) the more it's typically affected by changing interest rates. A ten year bond will usually lose more of its value if rates go up than the two year note. Also, the lower a bond's "coupon" rate, the more sensitive the bond's price is to changes in interest rates. Other features can have an effect as well. For example, a variable rate bond probably won't lose as much value as a fixed rate security; however, it may present other risk factors.
In today’s low interest rate environment, investors need to be careful!
No, changes in interest rates don't affect all bonds equally.

18. Some investors should consider Rebalancing
Some investors need to look at rebalancing their portfolios.

19. What Is Rebalancing?  Rebalancing is defined as the process of buying and selling  portions of your portfolio in order to set the weight of each asset class back to its original state. Source: Investopedia.com
Now, let’s define an important investor concept known as rebalancing.
According to Investopedia.com, rebalancing is defined as the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state.

20. Some Keys to Successful Rebalancing include:
Focusing on the Long Term
Recording
Comparing
Adjusting
Using Professional Guidance
Here are some keys to successful rebalancing. They include:
Focusing on the Long Term -- The long term strategy behind a disciplined approach is to stick with asset allocations that you review on a periodic basis.
Recording -- This is deciding on an asset-allocation strategy that is perfect for you and then purchasing the appropriate securities in each asset class; we then keep a record of the total weightings we are attempting to hold in each asset class. These numbers will provide us with historical data of your portfolio. 
Comparing -- On a chosen future date, we review the current value of your portfolio and of each asset class. We calculate the weightings of each holding in your portfolio by dividing the current value of each asset class by the total current portfolio value. We then can compare this figure to the original weightings. Are there any significant changes?  
Adjusting -- If we find that changes in your asset class weightings have distorted the portfolio's exposure to risk, we can then take the current total value of your portfolio and multiply it by each of the (percentage) weightings originally assigned to each asset class.
Using Professional Guidance -- The primary goal of rebalancing is to focus on minimizing an investors’ risk by staying within targeted allocations; it is not a pursuit of maximizing your investment returns.
Helping you determine how often and how much of your portfolio you need to rebalance is where we can add value. Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment.
*Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment.

21. What should I do if interest rates rise?
You bought a 10 year U.S. Treasury Note with a face value of $10,000 and an interest rate of 4.00%.
If you keep the bond until it matures, you'll receive $ each year for ten years, plus the original $10,000.
With interest rates low, there is always a chance that interest rates will rise.
You buy a 10 year U.S. Treasury Note with a face value of $10,000 and an interest rate of 4.00%. With interest rates low, there is always a chance that interest rates will rise.
If you keep the bond until it matures, you'll receive $400 each year for ten years, plus the original $10,000.
For illustrative purposes only. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

22. What if you sell before maturity and interest rates have gone up?
An investor buys a 10 year U.S. Treasury Note with a face value of $10,000 and an interest rate of 4.00%.
If the investor sells the bond before it matures and interest rates have risen 2%, he or she would only receive $8, (plus any interest paid before the sale).
What if you sell before maturity and interest rates have gone up?
An investor buys a 10 year U.S. Treasury Note with a face value of $10,000 and an interest rate of 4.00%.
If the investor sells the bond before it matures and interest rates have risen 2%, he or she would only receive $8, (plus any interest paid before the sale).
For illustrative purposes only. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

23. Duration is Important
Something we need to watch carefully when it comes to income investing is DURATION.
Duration is the measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates.
Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. It is a common misconception among inexperienced investors that bonds are risk free. They are not.
Two of the main risks investors need to watch that can affect a bond's investment value are: credit risk (default) and interest rate risk (rate fluctuations).
The duration indicator addresses interest rate risk. In today's low interest rate environment we need to try to monitor and watch DURATION.

24. Source: Oppenheimer Funds
2016 is a Presidential election year and according to an extensive study from Oppenheimer funds, the market does NOT perform any better when the “Pro-Business” Party (republican) is in the White House.
Source: Oppenheimer Funds

25. As this chart shows there is absolutely no prediction between market performance and which party is elected President!

26. Year End Tax Planning
Now let’s discuss Year-End Tax Planning.

27. Here is a quick look at 2016’s Federal Income Tax Rates and Brackets.

28. Long-Term Capital Gains & Qualified Dividends
Now, let’s review the 2016 taxation of Long-Term Capital Gains & Qualified Dividends.
This year the Long-Term Capital Gains & Qualified Dividends Tax rate is 20% for taxpayers with income above the threshold amounts listed on this slide
Also, for taxpayers above the threshold amounts for the additional 3.8% surtax, their capital gain rate will actually be 23.8%
The rate is set at 15% for taxpayers with lower incomes
There is still a Long-Term Capital Gains & Dividends 0% Rate if you are in the 15% bracket.

29. MOST Tax-Sensitive Bracket Management Tax Aware Tax Efficient 39.6%
35%
33%
28%
25%
15%
10%
MOST Tax-Sensitive
Tax Aware
Tax Efficient
What is critical is to determine your tax bracket.
For illustrative purposes we have grouped tax brackets into 3 major categories.
While a goal is to always be tax efficient, it is easier for those in the 10 or 15% tax brackets.
For those in the 25 or 28% tax bracket, probably many of you here tonight, are the group that should always be Tax Aware.
And for those in the highest or 33, 35 or 39.6% tax bracket, also many of you here tonight, need to be what we refer to as “most tax sensitive”.
Regardless of your tax bracket, your goal should always be to MINIMIZE TAXES when possible!

30. Key Year-End Tax Planning Strategies
Harvesting – Gains and Losses
Retirement Plan Contributions
Gifting
Roth IRA Conversion
So what are some key year-end tax planning strategies?
They include:
Harvesting – Gains and Losses
Retirement Plan Contributions
Gifting
Roth IRA Conversion

31. Income Tax Planning Opportunities in 2016
Gain Harvesting: Trade-offs
On the surface, it appears that taxpayers should always harvest gains
However, harvesting gains introduces a tradeoff between lower tax rates versus the loss of tax deferral
Tax is paid at a lower rate, but it is paid sooner
Need to determine a crossover point at which selling sooner makes more sense
Gain Harvesting: What are the trade-offs?
On the surface, it appears that taxpayers should always harvest gains
However, harvesting gains introduces a tradeoff between lower tax rates versus the loss of tax deferral.
When you harvest a gain:
Tax is paid at a lower rate, but it is paid sooner
So, you need to determine a crossover point at which selling sooner makes more sense

32. Income Tax Planning Opportunities in 2016
Gain Harvesting
Sell assets with long-term capital gains in 2016 if able to take advantage of lower brackets
Repurchase same or similar assets
Sell assets whenever you would have sold them otherwise
How do you use Gain Harvesting?
Ideally, you try to:
Sell assets with long-term capital gains in 2016 if able to take advantage of lower brackets
You can repurchase the same or similar assets
As an investor a good rule is to always think about selling assets whenever you would have sold them otherwise.

33. Income Tax Planning Opportunities in 2016
Gain Harvesting – When Should Gains Be Harvested?
Very short time horizon
Gain harvesting will almost always be favorable because the benefit of tax deferral is small
Very long time horizon
Gain harvesting will almost always be unfavorable because the benefit of tax deferral is large
Taxpayer in the 0% long-term capital gains bracket in 2016
Gain harvesting will always be favorable from a tax perspective because it gives you a free basis step-up
Gain Harvesting – When Should Gains Be Harvested?
For those with a very short time horizon
Gain harvesting will almost always be favorable because the benefit of tax deferral is small
For those with a very long time horizon
Gain harvesting will almost always be unfavorable because the benefit of tax deferral is large
And for taxpayers in the 0% long-term capital gains bracket in 2016
Gain harvesting will always be favorable from a tax perspective because it gives you a free basis step-up

34. Income Tax Planning Opportunities in 2016
Loss Harvesting – Key Issues
“Wash sale” rule (IRC §1091)
Now let’s review Loss Harvesting – Loss harvesting is helpful to offset any capital gains so that you can potentially reduce your tax impact and your overall tax bill! Here is a key issue that investors need to be aware of:
“Wash sale” rule (IRC §1091)

35. Income Tax Planning Opportunities in 2016
Loss Harvesting Strategies
Buy stock of similar company
Taxpayer has a stock (e.g. Coke) with an unrealized loss (i.e. “loss stock”)
Taxpayer purchases a similar stock (e.g. Pepsi) at any time prior to (or after) the sale of the “loss stock”
NOTE: The sale and purchase can occur on the same day in that the two stocks are not “substantially identical”
Double-up “loss stock” – wait 31 days
Here are Loss Harvesting strategies:
Sell and buy stock of similar company. For example, a:
Taxpayer has a stock (e.g. Coke) with an unrealized loss (i.e. “loss stock”)
Taxpayer purchases a similar stock (e.g. Pepsi) at any time prior to (or after) the sale of the “loss stock”
NOTE: The sale and purchase can occur on the same day in that the two stocks are not “substantially identical”
You can also Double-up “loss stock” – and then wait 31 days

36. Retirement Plan Contributions
Before year end you may be eligible to make a Retirement Plan contribution.
Call us if you have a question, but a general rule is to always consider contributing to your retirement plans if possible!
Always Consider Contributing to Your Retirement Plans if Possible!

37. Gifting in 2016 Annual Gift Amount for 2016 is $14,000 529 Plans
Charitable Donations
Lifetime Amounts
Many gifting options are available this year.
The annual gift amount for 2016 is $14,000 per person.
529 Plans are also available and they can allow higher gift amounts.
Charitable Donations for 2016 need to be made in 2016.
Always be aware of lifetime gifting amounts.
There are many gifting options are available. We can discuss this with you and your accountant to determine the correct strategy for you.

38. Roth IRA Contribution Conversion
Next, I want to quickly discuss Roth IRAs. There are two major components to review, Roth IRA contributions and ROTH IRA conversions.
For married couples whose Modified Adjusted Gross Incomes are above $194,000 and single filers with Modified Adjusted Gross Incomes above $132,000, you cannot contribute to a Roth in However, anyone, regardless of their income, can convert from a Traditional IRA to a Roth IRA.

39. Roth IRA Conversions – Roth IRA Conversion Benefits
Income Tax Planning Opportunities in 2016
Roth IRA Conversions – Roth IRA Conversion Benefits
Lowers overall taxable income long-term
Tax-free compounding
No RMDs at age 70½
Tax-free withdrawals for beneficiaries
Let’s focus on Roth IRA Conversions and Roth IRA Conversion Benefits
A Roth IRA conversion lowers overall taxable income long-term
You benefit from tax-free compounding
ROTH IRA’s have no RMDs at age 70½
And there are tax-free withdrawals for beneficiaries

40. Income Tax Planning Opportunities in 2016
Roth IRA Conversions
Critical decision factors
Tax rate differential (i.e. tax rate in year of conversion vs. tax rate in years of withdrawals)
Ability to use “outside assets” (i.e. non-IRA funds) to pay the income tax on the conversion
Time horizon / need for IRA to meet annual living expenses
There are critical decision factors that need to be considered.
What will be your tax rate differential (i.e. tax rate in year of conversion vs. tax rate in years of withdrawals)?
Do you have the ability to use “outside assets” (i.e. non-IRA funds) to pay the income tax on the conversion?
Is there a time horizon or need for the IRA to meet annual living expenses?
In converting a Traditional IRA to a Roth IRA, you will need to calculate how much you owe in ordinary income taxes on the amounts converted. A conversion may place you in a higher tax bracket than you are in now. Please keep in mind that Roth IRA conversions may not be appropriate for all investors and individual situations vary; we suggest that you discuss tax issues with a qualified tax advisor.
The goal of a successful Roth IRA conversion is to keep as much of the conversion income as possible in lower income tax brackets.
The goal of a successful Roth IRA conversion is to keep as much of the conversion income as possible in lower income tax brackets

41. Income Tax Planning Opportunities in 2016
Taxpayers may “recharacterize” (i.e. undo) the Roth IRA conversion
The last benefit of this conversion opportunity is the option for taxpayers to “recharacterize” or “undo” the Roth IRA conversion in the current year or by the filing date of the current year’s tax return. Some technical guidelines include;
Recharacterization can take place as late as October 15 in the year following the year of conversion
Additionally, taxpayers may still “reconvert” their recharacterization.
Reconversion may only take place at the later of: (1) The tax year following the original conversion or (2) 30 days after the recharacterization

42. Income Tax Planning Opportunities in 2016
Roth IRA Conversions – Roth IRA Conversion Timeline
Roth IRA Conversions – Recharacterizations
2017
Conversion Period
Recharacterization Period
1/1/2016
First day conversion can take place
2016
12/31/2016
Last day conversion can take place
4/17/2017
Normal filing date for 2016 tax return
10/16/2017 Latest filing date for 2016 tax return / last day to recharacterize 2016 Roth IRA conversion
12/31/2017
Here’s a timeline illustration of a Roth conversion that takes place in 2016.
One date of particular importance is October 16, 2017, (because the 15th falls on a Sunday) which is the latest filing date for your 2016 tax return and is the last day to recharacterize any 2016 Roth IRA conversions.

43. Quotes From Famous Investors
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” Warren Buffett
“To be an investor you must be a
believer in a better tomorrow.” Ben Graham
  “I don't like money, actually, but it quiets my nerves.”  
Joe Louis
“Hire wise experts to help you!”
Sir John Templeton
Here are some quotes from famous investors.
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” - Warren Buffett
“To be an investor you must be a believer in a better tomorrow.” – Ben Graham
“I don't like money, actually, but it quiets my nerves.”  - Joe Louis
“Hire wise experts to help you!” – Sir John Templeton

44. Where do we go from here?
So – where do we go from here?

45. We review changes for our clients regularly.
One of our main focuses as a financial advisory practice is to continuously review and evaluate changes for our clients on an ongoing basis.

46. What can you expect from us?
Constant communication
Frequent discussions
We are constantly reviewing economic, tax, estate and investment issues for our clients
What can you expect from us?
You can expect;
constant communication,
frequent discussions,
and you can expect that we are constantly reviewing economic, tax, estate and investment issues for our clients.

47. Our Role as Your Advisor
We will maintain a non-emotional objective
We will avoid knee-jerk reactions
We will assist you in making decisions that are always in your best interest! - and
WE WILL BE HERE FOR YOU!
As you know, our role as your advisor is to:
Maintain a non-emotional objective;
Avoid knee-jerk reactions;
Assist you in making decisions that are always in your best interest; and
We will be here for you!
Slide 47

48. Our Year-End Tax Report
Available Soon
Our Year-End Tax Report
Once again, before year-end, we will be sending out our annual Year-End Tax Report.
If you are not on our mailing list, please sign up so that we can make sure you get your copy. Also, we encourage clients to add (2-5) more friends to our list so that they can benefit from this information.

49. We appreciate the opportunity to assist with YOUR financial needs!
Thank You
We appreciate the opportunity to assist with YOUR financial needs!
Thank you for coming to this workshop. We appreciate the opportunity to assist you with your financial needs.
Can I see by a raise of hands anyone who is not currently a client?
We would like to take this time to invite any of the guests here today to a complimentary session to help you take this important information with your specific financial needs and goals. Please see one of our team members (introduce the team members) at the exit in order to schedule your complimentary session.
As you know, we are also making ourselves available to help some of your friends and colleagues. One theme that you have probably heard from our office already is our company’s “Growth Initiative.” It is our goal to offer our services to several other clients just like you. It is primarily through an introduction from our top clients that we have been able to meet high quality people who can possibly benefit from our services. We would be honored if you shared with us the names of one or two other friends, relatives or colleagues so we can invite them to a future workshop or have them schedule a complimentary consultation.
Again, thank you for attending tonight.

50. Any Questions?
Any questions?

51. Contents provided by APFA, Inc. Copyright 2016 APFA, Inc.
The views expressed are not necessarily the opinion of Insert SagePoint Financial Inc. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice.
Investing involves risk including the potential loss of principal. No investment strategy, such as asset allocation and rebalancing, can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.
Contents provided by APFA, Inc. Copyright 2016 APFA, Inc.