SYM News

Tax Planning Today for 2017

If tax time is always a bit confusing, then Federal tax planning for 2017 might feel like a 12-sided Rubik’s Cube. While a precise algorithm may not exist to solve for this new tax environment, we are happy to offer some simple and practical advice for your consideration at year-end.


Congressional and Presidential plans for the tax code are gaining clarity and the incoming administration appears likely to reset some of the paradigms we currently understand about our tax code. Because any final plan will likely require support from both parties, SYM believes it is unlikely that tax liability will fall as far as some prognosticators suggest.


Even so, it’s improbable that tax rates will rise in 2017. To the contrary, we may well see the investment income surcharge disappear and income tax brackets drop (along with some adjustments to deductions.) So, how can a reasonable person plan for this uncertainty? 


One longstanding opportunity is to pull tax deductions one might enjoy in future years into the current year. Usually this is a concept born out of the time value of money, where you can deduct with 2016 dollars instead of presumably less valuable 2017 dollars. However, this year also presents the opportunity for taxpayers to take the deductions in a year when your tax bracket may be higher than it will be in the future. This is particularly valuable for anyone who retired in 2016, especially if they received a severance benefit and other pay, but expect their income to fall in coming years. 


Sometimes a winning tax strategy can be as simple as paying your upcoming property taxes in 2016. Those who are business owners might be able to take a larger loss in 2016 than they may expect in 2017. This option could benefit individual investors as well. While market movements over the past few years haven’t been particularly generous, market investors have also not experienced significant losses. Admittedly, this somewhat mitigates this approach. If a business owner or investor has large gains they need to take, they should almost certainly defer those gains into 2017. 


Of course, everyone with the ability should maximize tax-deductible contributions to retirement plans in 2017. If you have already done so, you might consider making a large tax deductible charitable contribution to a donor advised fund from which you can recommend distributions to specific charities in future years. Donating stocks or mutual fund shares with embedded gains is even more advantageous.


Because we don’t know exactly what tomorrow’s tax rates will be, we also can’t know exactly how to act in 2016. However, SYM believes that because Federal tax policy is quite likely to shift lower in 2017, those who are most tax sensitive and whose circumstances allow for solid planning should consider taking appropriate action yet in 2016 to offset the long-term taxation of their income and wealth.

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When Financial “Rules of Thumb” Become Costly

Frank and Fiona Eff are a bright couple who saved diligently for their retirement years throughout their adult lives.  Each is 50 years old, their children have been raised and launched, and each loves their respective job at ABC Corporation.  Frank and Fiona enjoy the challenges and connections of their work so much that they plan to stay at their careers another fifteen years before enjoying a retirement filled with family, travel, and giving back to their community.  Fortunately, each has a pension plan, and each will enjoy relatively generous Social Security benefits.  Though they have been saving inside and outside of retirement plans since the age of 22, they aren’t sure they’ll even need to draw from those accounts due to anticipated regular retirement inflows.


Sam and Sally Ess have also enjoyed a wonderful life.  Similarly, they are 50 years of age and successfully raised and launched their family.  Sam and Sally are aiming for an early retirement to pursue their passion for the outdoors.  They intend to spend their retirement years hiking, enjoying our country’s national park system, and volunteering with their local wildlife conservancy.  While Sam and Sally were also diligent savers, neither can claim pension plan benefits.  Their monthly Social Security income, though comparable to the Effs, will not sustain their current standard of living and for that reason they plan to begin withdrawing from their savings accounts shortly after retirement.


It’s possible that both the Ess family and the Effs had some level of professional financial guidance in preparation for their retirement years.  It’s also possible that their retirement planning consisted of no more than a hodge-podge of broker advice, Google searches, tips from brothers-in law, or the “strategy” of dividing an equal percentage of their 401k contributions into each available fund. And then there’s luck – or a lack of it.  


Because retirement planning is complex, people with and without professional advisors frequently rely on “rules of thumb” when determining asset allocation (what percentage of your wealth you apportion to each investment category, one of the most important variables in planning).  Rule-of-thumb strategies are based on the characteristics of an “average investor,” and ease of use is their most attractive quality.  

Rules of thumb can help simplify decision making by providing a place to begin with complex issues.  Average-investor allocation models – used as a starting point – can sometimes be helpful.  However, if you’re using them as the start and end of your financial guidance, expect trouble ahead. 


To begin with, the average investor (the mythical model for various rules-of-thumb) is a fictitious entity.  Every investor departs from “average” to some degree.  Also, changing tax codes, longer life expectancies, and other environmental factors regularly render old frameworks obsolete. In spite of this, too many advisors rely solely on rules of thumb in the creation of their cookie-cutter financial plans, and too many self-managers do the same.  


Expert advisors, on the other hand, deal with deviations all the time.  They are adept at spotting important variables among their clients, and they know how to respond to them in ways that static approaches miss.  In fact, for many people who trusted their retirement to a rule-of-thumb model, the cost of missed returns will easily exceed the cost of professional advice.    


We see this with the Eff family and the Ess family.  These couples have dramatically different needs. However, advisors who follow “standard” asset allocation guidelines do both of them a disservice.


Here’s an example:  According to a common rule of thumb, we should  invest 100%, minus our age, in stocks. This would guide a 30 year old – any 30 year old - to a portfolio of 70% stocks and 30% bonds. To accommodate longer life spans, recommendations recently changed to 120 minus your age. It’s surprising to discover this advice mentioned by well-known financial news providers such as CNN Money and respected experts such as Vanguard Funds founder, John Bogle (Bogle J., 2010). In fact, more sources than not will point both the Effs and the Esses to the same asset allocation formula.


While it is reasonable to consider age as a factor when determining the best asset allocation and easy to apply a one-size-fits-all formula to families who have a lot in common, taking a much broader and more thoughtful approach could have helped the Esses keep up with the Effs in retirement.   


SYM advisors believe investors should structure asset allocation based on their expected near-term need for cash distributions from the portfolio, not their chronological ages. This practice should then be tempered with the investor’s ability to disregard short term market swings. Simply said, dollars an investor wants to access within seven years could be allocated to less volatile investments such as bonds. The beauty of this strategy is that as time goes by, the more you can ignore the bumpiness the larger your gains will likely be over your investing career.


Frank and Fiona Eff know their current cash flow needs are met by their salaries. In retirement, they will look forward to their pensions providing a stable and comfortable base of support – with or without distributions from their investment portfolio. As a result, even during precipitous market swings and unfounded calls for disaster, the Effs can invest more aggressively than peers who do not enjoy these post-retirement income sources.


Conversely, Sam and Sally are better served to place 35% to 50% of their portfolio in lower-risk bonds. Because they are leaving steady jobs for an early retirement, the Esses’ need for access to cash is immediate. Without the safety net of a pension, Sam and Sally will depend upon regular distributions from their investment portfolio to replace their salaries – even when markets are down.  It’s been said that the only people who truly lose in a down market are those who sell.  At their retirement, if the Esses’ income depends on regular draws from their equity account, they could easily find themselves selling when the markets are not at their best.  This wipes out a large percent of their savings, which feels particularly painful because it was avoidable.


While nobody likes to see their stock portfolio drop, rolling with the ups and downs is a necessary evil of investing.  To increase your likelihood of success, only risk dollars you don’t need for many, many years.  At the same time, fight the urge to be more conservative than necessary, especially when time is an asset.  Concerns over possible loss are reasonable and prudent. Still, to the extent of your ability, compartmentalize your concerns and ask yourself, “Even if a down market doesn’t recover for months or even years, do I think it will recover over the course of five or seven years? And am I willing to tolerate the downside so I can take advantage of the upside?”


There’s no shame in admitting you are unable to tolerate the bumps. Knowing your personal appetite for investment turbulence is extremely important. In a low-risk moderate-return scenario where portfolio disbursements will provide a significant percentage of retirement income, a good financial plan can and will be adjusted to reduce lifestyle expenses now to make ends meet in retirement.                


Assessing one’s allocation needs is fundamental to SYM’s client service methodology, and when paired with complex strategies around rebalancing and minimizing the tax impact of portfolio gains, this approach increases the likelihood that our clients can enjoy the retirement they strive for. Wherever you are on the path to retirement, don’t fall into the trap of using overly simplistic rules of thumb for important life decisions.  The future will be here faster than you may believe. Appreciate if your situation warrants trusting a professional wealth advisor to help you see the nuances beyond the average.


Reference: Bogle, J. (2010). The Little Book of Common Sense Investing. Hoboken: John Wiley & Sons.

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Your Portfolio and Presidential Elections

Presidential elections in the United States are storied events which often culminate with a fresh face in office and a large new voice in American policy.


Though just four and five percent of all Americans voted for Donald Trump and Hillary Clinton during the primaries,[1] many voters now shudder at the prospect of one candidate or the other occupying the White House. Super Tuesday showcased a national display of petulance with a spontaneous surge in Google searches for “how can I move to Canada.”2 Some voters say they begrudgingly favor one nominee over another in hopes of dodging a “greater evil;” others find comfort in a third party candidate (while acknowledging that any third party faces great odds amid a long history of Republican and Democratic victories). There is even a large cadre of Americans claiming they will abstain from voting altogether. Meanwhile, though not part of the vocal majority, a segment of Americans appear to be perfectly comfortable with the drama playing out on the political stage and are pleased with their chosen candidate.


Until November 8, our clients living in the United States will continue to be bombarded with appeals and attacks meant to influence votes, but alarming political commercials and emotionally-charged news articles can spill over and create investment temptations as well. At SYM, we’ll happily stay out of the political debate while offering a few points to consider when it comes to election-year finances.


Viewing the election through an investment lens, our best advice is un-glamorous but sound: stick with the strategy even (and especially) through uncertain times. It’s encouraging that historically, investment values have held solid during times of presidential unpopularity. This also holds true during high-stakes elections where military, business, and social concerns are at the forefront, and when members of either party win. Remember that financial and political analysts have been torturing data for as long as data has been available, and show no sign of easing up. But if the overflow of speculation/information still gets to you, reflect on the following truths:


  • With or without gridlock, no party gets its way unfettered.
  • Changes in Washington are typically incremental, not revolutionary.
  • Interestingly, if you happened to support a primary candidate who was calling for a revolution, know that investments have grown substantially during years in which elections did not result in a desired revolution.
  • For better or worse, campaign rhetoric doesn’t always align with what happens during the winner’s presidency.
  • Consumers and businesses have a greater impact on the economy than has the government.
  • While economic conditions often affect the incumbent party’s reelection odds, the parties themselves rarely cause meaningful differences in investment outcomes.

Bear in mind that SYM’s equity portfolios invest in companies, not in the United States political climate. As with any time, we fully expect stock prices to move up and down throughout the year. However, SYM’s broad diversification among many sectors and countries is designed to lower the impact of any hypothetical regulation on individually debated groups of businesses - such as minimum wage paying restaurants, fossil fuel miners or multinational importers. In the S&P 500 (a company for which one candidate called for a temporary product boycott and promised pressure to end the company’s overseas manufacturing), constitutes under one half of one percent of SYM’s investment portfolio.


SYM’s quarterly presentation will address these issues for our clients in more detail. With that said, for the next few months a relaxation phone app or quality time spent away from all media sources may benefit your investment outlook as much as the strategy principles we usually discuss.


[1] New York Times, August 1, 2016. Accessed at
2 US News & World Report, March 2, 2016. Accessed at


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Two Documents Every 18-Year-Old Should Sign

Financial and health care power of attorney documents are fundamental components of any estate plan.  Executing these documents is essential to allow others to act on our behalf when we are unable to act for ourselves.


When we think about who will act on behalf of our adult children when health or other emergencies arise in their lives, we tend to automatically assume that as parents we can always step in for our kids when they can’t fend for themselves. Right? Wrong!


On a child’s 18th birthday, he or she becomes an adult in the eyes of the law. This is true even if you are still paying for his or her college tuition, housing, cell phone and car insurance, and it’s even true if you still carry the adult child on your health insurance plan and claim him or her as a dependent on your income tax return. 


More importantly, without proper documentation parents don’t have the authority to manage their adult children’s finances or make health care decisions on their behalf. A child developing the maturity to make their own choices is part of the normal process of turning children into fruitful adults. However, if a young adult is in an accident or becomes temporarily disabled, without a pre-existing power of attorney a parent will need to obtain court approval simply to act on their child’s behalf.


As much as we hope we’ve prepared them to take care of themselves in any situation, we are likely still our children’s fallback for emergencies. It could be a parent’s worst nightmare to find out the hard way that the law has cut some valuable and deep ties when your child needs you the most. And as the average age of marriage for young people creeps up into the late 20’s, it’s likely there could be a ten-year or more window of risk where there is no spouse to assume the role of agent and advocate and you as the parent will be in the best position to act during times of crisis.


Fortunately, a simple solution exists. When your children turn 18 years of age, ask them to sign both a Durable Power of Attorney and a Health Care Directive, documents which will allow you to make decisions regarding emergency health care or step in and manage your adult children’s financial affairs should they be unable to do so themselves. Be sure the documents are valid not only in the state where you reside, but also in your children’s states of residence.


The Health Care Directive consists of three parts: a health care power of attorney, which authorizes an agent to make medical decisions on someone’s behalf; a HIPPA release that will provide the agent full access to medical records; and a living will, which expresses a person’s preference regarding end-of-life care.


While the health care directive gives authority over medical decisions, a Durable Power of Attorney appoints an agent to act on an adult child’s behalf in a wider range of financial and legal matters. Not only limited to parents, any trusted family member, friend or adviser may take on the role of agent.


A power of attorney may become effective from the moment it is signed or it may be activated by a specific event—for instance, if he or she becomes incompetent. The problem with this approach, known as “springing power,” is that someone must decide when an individual has reached that state. For that reason we recommend a durable power of attorney that takes effect immediately.


Certainly these situations are not fun to ponder. But an ounce of prevention is worth a pound of cure when it comes to the health and wellbeing of our adult children.

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Who is your financial advisor really working for? Part 3 of 3

People like to ask financial advisors for “the next hot pick” in the stock market. Though a true professional won’t venture a serious guess to that inquiry, you can be sure he or she can offer something more valuable than a stock tip. Parts 1 and 2 addressed the first four of five questions people really should ask when coming face-to face with a wealth advisor or anyone selling investment products. The answer to the fifth and final question will quickly reveal what kind of investment provider you are dealing with, and whose interests might take priority in any future relationship. Not a SYM client? Put your current advisor to the test.

The fifth and final question is one of critical importance:  Will you accept the responsibility to put my best interests first? 
In the investment industry (and others), the responsibility to put clients’ interests before your own is considered a fiduciary duty. As unbelievable as it sounds, most advisors were never required to adhere to this principal. In fact, it’s still extremely difficult for prospective clients to know what they can expect of a relationship with their financial professional should conflicts of interest occur. This issue was pressing enough that in March 2016, the Department of Labor (DOL) ruled that all advisors must become a fiduciary, though their definition still allows for conflicts of interest to exist if disclosed.


In contrast, financial advisors who identify as Registered Investment Advisors (RIAs) have always pledged a code of conduct more stringent than the DOL’s new requirements. Their compensation is fee-only or fee-based, meaning their pay is linked to serving clients uncommonly well, not hawking an investment product.


When considering a new advisory relationship (remembering that all advisors will consider themselves to be fiduciaries after January 2018, the final implementation date for DOL requirements), start by asking the advisor what having a fiduciary responsibility to clients means to him. Ask what his fiduciary duty looks like in action, and if his method of compensation might introduce conflicts of interest to the relationship. If you aren’t comfortable with the response, we recommend you keep looking.


The sad reality is, much of the financial industry is a thinly veiled sales institution. Because we are humans, we can become emotionally impaired by those things which have happened to us most recently. Market or personal disorder can make fertile ground for salespeople with “products” that make us believe we are well-protected. Consider fixed annuities, cash features like CDs and high yield deposit accounts, and “no risk no loss” promotions. Are these inherently bad products? Not necessarily.  But are they the best places to invest your money? NOT NECESSARILY. The problem occurs when a financial salesperson (making his mortgage payment by way of sales commissions) convinces both of you that they are!


A true professional will deliver guidance and results to steady you through thick and thin. He or she will help you sidestep the errors in judgement that might trigger a desire to buy and/or sell at the wrong time. A financial salesperson, sometimes unwittingly, will offer only the tools and resources at his disposable, however appropriate or inappropriate they may be. As they say, “When all you have is a hammer, everything looks like a nail!”


The next time you meet a financial advisor, forget about products. Don’t ask for a “magic bean” to help you avoid taxes, access market upside without downside, or protect you from what happened yesterday. Instead, ask the five thoughtful questions above. While a salesperson will have slick responses (or worse, try to sell you the magic bean!), a professional advisor will provide real food for thought.


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