Managing Your Retirement Cash Flow

By Jarrod Upton on February 21, 2012

Jarrod Upton, CFP®, is a member of NAPFA, a professional association of fee-only financial planners.When most people think about retiring, they don’t often think about cash flow management.  A recent Fidelity study showed that most people will need approximately 85% of their annual pre-retirement income in retirement.   Meeting this need without a full time job can be a significant challenge.   In addition, life expectancies continue to rise and retirees face the risk of potentially outliving their available income sources and running out of funds.  To avoid this terrible scenario, it is vital to prepare a retirement plan and analyze your future cash flow situation.  It is better to prepare than repair.

The first step is to identify your short and long-term goals.  It can be helpful to think in terms of needs, wants, and wishes.   Food, shelter and healthcare are often considered needs.  Wants may include more time with family, dining out and some travel.  Wishes are important to consider and may include major expenses such as a new home purchase or significant charitable contributions.   As you clarify goals include the estimated expense associated with each desire.  If you have a current budget, make adjustments to include your planned lifestyle in retirement.  If you don’t have a current budget, this is a new opportunity to establish your plan for the future.  Life can bring many unexpected changes so it is wise to review your goals on at least a yearly basis.  At IAM, we are glad to help you identify these retirement goals and establish a regular routine to monitor them.

The second step is to review all of your retirement income sources.  This includes dividends, interest, pensions, social security, and annuity income.  There are a number of different sources that can be included and they all should be evaluated to determine if they will provide sufficient income to meet your goals.  If retirement is still a few years away, look at which sources of income you expect in retirement and how these can be used to address the budgeted expenses you identified in the first step.

The third step is to understand your tax situation.  Retirement planning generally involves taking distributions from 3 types of accounts:

  • Pretax qualified plans, i.e. 401(k), 403(b) and traditional IRA accounts
  • Tax free accounts, i.e. Roth 401(k) and Roth IRA accounts
  • Taxable accounts, i.e. Brokerage and savings accounts.

Each of these types of accounts can have a different tax treatment for distributions.  Before retiring it is important to have a distribution plan in place.  This can be a formal written plan or a verbal arrangement prepared with your financial advisor and CPA.  We are glad to work with you and your accountant to prepare a distribution plan that can minimize taxes and provide the income your need.  The plan should be reviewed regularly because the withdrawal phase can potentially warrant undue tax consequences if not planned properly.

Finally, it is important to understand your overall financial situation and timetable for retirement.  Delaying retirement or Social Security could allow for more income and the opportunity to more easily meet your goals.  Everyone’s situation is different and needs to be viewed as such.  Understanding your retirement needs now and in the future can provide peace of mind by helping you know where you’re going.  Retirement planning is similar to a road map, and the great thing is you get to decide the stops along the way.  If you have more questions on this or other financial planning matters, please contact Jarrod Upton CFP® or Chris Troseth CFP® at Investors Asset Management, 972-985-7162.

 

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be construed as legal advice, and you should consult with a qualified attorney before taking any action.  Information presented herein is subject to change without notice.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

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Sleep Profitably

By Rich Erwin on February 13, 2012

Rich Erwin, Founder, President and Chief Investment Officer of IAM.We know many IAM or  clients are still building their assets and desire growth in their portfolios.  If you’re one of those, Tempur-Pedic (TPX) was selected with you in mind.  Six months ago, we added TPX to the Investors Asset Management or IAM Select List.  Consumer-oriented stocks slumped during the summer months as investors worried about weakness in the U.S. economy and a European Debt Crisis.  We viewed this as an opportunity to add strong growth names to portfolios.  Along with Tempur-Pedic, we purchased Fossil in August.  One-half year later they’re up 25% and 36%, respectively.

As we’ve introduced the bedding company to clients in recent months, we’ve found many are curious as to what we see in it.  They like the progress the shares are making but don’t understand why we believe it’s attractive.  Let’s address that issue.

Tempur-Pedic was founded 20 years ago, but its product has its history in NASA and Scandinavian scientists.  Pressure-absorbing material was used by NASA in the 1970s to help cushion astronauts on lift off.  After the material was released to the public in the 1980s, companies in Sweden and Denmark sought to incorporate it into mattresses.  Swedish scientists eventually perfected TEMPUR material for this use.

A Lexington, Kentucky businessman went to northern Europe and learned more about this process before starting production in the U.S. in 1992 under the Tempur-Pedic name.  The rest is history.  At the end of 2003, the company went public at $14 per share.  The price now stands five times higher at $70.

Sales over the past 10 years have climbed from $300 million to $1.4 billion, despite the 2007-2008 financial crises.  TPX eventually acquired the Danish mattress manufacturer.  Last quarter it generated 32% of sales internationally – very impressive for a company of its age.

So what makes this company successful?  It is passionate about its belief that “everyone deserves a great night’s sleep.”  They’re also committed to quality products, innovation, product fit, and the delivery experience.  They provide a 20 year warranty on mattresses!

Customer satisfaction is just one of many reasons we at IAM believe Tempur-pedic International is an attractive investment for long-term investors.Growth has occurred as consumers have discovered the Tempur-Pedic experience.  As it has grown, the company has staked out the luxury bedding segment of the market.  Its Grand Bed retails for more than $6,000 and includes a silk-cashmere blend cover.   At the other end of the spectrum TPX has just introduced a line of premium mattresses at affordable prices.  The TEMPUR-Simplicity model will be available in April at a retail price of $1,499 for a queen flat set.  Broadening the product line is important because it gives the company more retail selling space in showrooms.  Although some cannibalization of higher priced lines is expected, the potential for substantially increased sales should be worth it.

In addition to mattresses, Tempur-Pedic sells pillows, bed linens, slippers, and dog beds.  Expect them to continue to innovate with their pressure-relieving materials.

From a financial standpoint, we like the company’s strong and steady profit margins, solid sales growth, and positive cash flow.  Management continues to buy back shares.  It has also increased product advertising by 40%.  Although a number of brokerage firms now follow the stock, there is still room for larger companies like Morgan Stanley and Bank of America Merrill Lynch to come aboard and help push the shares higher.  The company’s market capitalization is a mid-sized $4.5 billion.

From the standpoint of the stock price, we believe the shares are still attractive for long-term investors.  They’re not sitting in the bargain bin, but the price/earnings ratio could expand further as the company continues to demonstrate superior growth characteristics.

So, if you want to sleep in comfort, buy a Tempur-Pedic bed.  If you’re looking for growth in your portfolio, you may rest better in the long-run by owning TPX if the company continues to expand profitably.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be construed as legal advice, and you should consult with a qualified attorney before taking any action.  Information presented herein is subject to change without notice.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of December 27, 2011.  The Select Dividend List as of January 24, 2012, represents a select set of IAM’s Select List. The securities discussed herein may appear on IAM’s Select List. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc.  5000 Legacy Drive, Plano, TX 75024  www.iaminvest.com  972-985-7162

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Dive In and Explore Oceaneering International

By Leanne DeVey on January 31, 2012

Investment Analyst/Portfolio Manager Leanne DeVey joined the IAM team in 2008.Oceaneering International, Inc. (ticker symbol OII) is a Houston, Texas based oilfield provider.  So it probably doesn’t surprise you that an oilfield provider might be located in Texas, right?  But the name is the first clue to this company’s uniqueness.  Oceaneering (“Ocean Engineering”) is exactly what they do.  They provide engineered services and products to the offshore oil and gas industry with a focus on deepwater applications around the world.  OII has regional headquarters in Brazil, Norway, Scotland, Singapore and the United Arab Emirates.

Founded in 1964, Oceaneering International has two main business areas: services and products provided to the oil and gas industry, and Advanced Technologies, which includes support to the defense and aerospace industries.

The services and products area provides remotely operated vehicles (ROV’s), which are operated by technicians usually onboard a ship or a floating drilling rig.  ROV’s are used to perform a variety of offshore oilfield tasks in water depths which manned divers can’t reach.  (Click on this link to see an ROV in action)  Oceaneering is the world’s largest manufacturer of ROV systems and is the largest operator and provider of work class ROV’s.  OII has a fleet of over 250 ROV’s and employs more than 2,000 worldwide ROV offshore personnel.  This segment accounted for approximately 34% of 2010 revenue.

Subsea Products (29% of revenue) includes manufactured specialty subsea oilfield products which are built to order.  Giant control umbilicals, ROV tools, clamps and valves comprise some of the products offered.  (Click here to see examples of umbilicals)

Subsea Projects (13% of revenue) provides subsea oilfield hardware installation, infrastructure inspections, repairs and maintenance services.   OII services not only deepwater projects with ships which have ROVs onboard, but also shallow-water projects with manned diving support vessels.

The inspection segment (12% of revenue) provides non-destructive testing and inspection, integrity management and assessment services.

Advanced Technologies (12% of revenue) provides engineering services and manufacturing to the US Department of Defense, NASA and the commercial theme park industry.  They also provide service on US Navy surface ships and submarines.

 

Leanne DeVey reveals the reasons why IAM is so fond of Oceaneering International. So if you are up to the challenge, dive in and explore Oceaneering for yourself

So what attracted IAM to Oceaneering International?  We look for innovative, well-run companies which fit our SELECT List criteria.  We think Oceaneering International could be one of the next generation Blue Chip stocks, whose size provides them an opportunity for expansion and growth.  (Click here for Rich Erwin’s IAM Insight article “Finding Growth in Smaller Socially Responsible Companies.”) OII’s mission is “to increase the net wealth of its shareholders by providing safe, cost-effective and quality-based technical solutions satisfying customer needs worldwide.” In early December 2011, OII had no debt and over $150 million in cash.  Their third quarter results were at an all-time high from ROV and Subsea Products operations.  And in 2010, the company had a two-for-one stock split and began paying dividends.  OII’s dividend yield is 1.30% at the time of this article.

Oceaneering’s number one ethic is the safety, health and well-being of its employees, contractors, customers and the public.  “No job is so urgent that it cannot be done in a safe and environmentally responsible manner.  Oceaneering will foster an atmosphere that focuses on prevention of incidents and protection of the environment.  Safety will never be compromised.”  (From Oceaneering’s Health Safety and Environmental Management System policy statement.) As a recent example, OII installed well completion hardware in the Alaminos Canyon area in the Gulf of Mexico.  Through all phases of planning, engineering, and execution they had a perfect safety record.  OII has developed the best ROV workforce in the industry by continually investing in its employees.   The ROV operations and maintenance training program began in 1995 and has a budget over $10 million per year.

OII has an environmental management plan whose intent is to “ensure the environmental impacts of operations have been properly identified, assessed and appropriate processes are implemented to reduce environmental incidents and liabilities.”

And if you were wondering what OII was going to do with all that cash on its books, here’s an answer.  On December 20th 2011, OII’s Norwegian subsidiary, Oceaneering AS, acquired AGR Field Operations in Norway.  It’s a complimentary fit to the services Oceaneering International provides. On December 21st 2011, Oceaneering secured a three-year field support vessel services contract with BP, where OII will provide project management, engineering and vessel services offshore to Angola beginning in February, 2012.

With drilling intensity rising, especially now that the moratorium on deepwater drilling in the Gulf of Mexico has been lifted, a specialized engineering and product service oilfield provider like OII is in prime position. We’re looking forward to seeing more progress at Oceaneering International.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of December 27, 2011.  Oceaneering appears on IAM’s Select List of securities that the firm recommends.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

 

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Estate Planning: How H.R. 4853 May Affect You

By Jarrod Upton on January 24, 2012

Jarrod Upton, CFP®, is a member of NAPFA, a professional association of fee-only financial planners.How many of you are aware of H.R. 4853?  If you are like most people, you might ask what H.R. 4853 is and what it has to do with you.  H.R. 4853 is “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” that was approved on December 17, 2010 by President Obama.  This bill became effective from January 1, 2011 through December 31, 2012.  It also contains a provision that extends the estate, gift, and generation skipping transfer tax exclusions through the end of this year.  If Congress does not act before the end of the year, the estate tax rate will revert to pre-2001 rates.  Again, you may be asking yourself what this actually means to you.

Currently the estate tax exemption is $5,000,000, and the top tax rate is 35%.  This means you can currently give away, or bequeath, up to $5 million per person and not be subject to estate taxes.  Please keep in mind this is a lifetime gift amount.  However, the current estate tax exemption will sunset at the end of 2012.  If there is not a change to the current estate tax provision, the exemption will reduce to $1,000,000 and the top tax rate will increase to 55% in 2013. If this happens, will you be prepared?

The best laid plan is one that is set up in advance and built for contingencies.  Failing to plan for your estate appropriately could lead to heartache for your loved ones.  The estate tax limits could all change given that this year is an election year.  However, there are some actions you can consider taking this year to plan properly.

Estate Planning: How H.R. 4853 May Affect You1. Review your estate plan. When was the last time you did this? Are the documents organized and do your loved ones know how to access the documents when needed? Many people spend their lives working hard and building their assets. Along the way they may set up some basic estate planning documents such as a will and power of attorney. However, as their asset base grows their situation can become more complex and could require more planning.

2. Sit down with your financial planner and estate attorney. These professionals are most aware of the changes to the laws and your personal situation. Spending some time with them could provide significant peace of mind for your future. Make sure to bring in any current wills or trusts. Situations change and assets change. So it is important for the right assets to be named appropriately in any wills and trusts you may have.

3. Review and update your beneficiary designation forms and account information. Certain types of accounts, i.e. IRAs, will transfer outside of a trust or will. They have their own provisions and should be reviewed periodically to ensure that they still reflect your estate planning goals.

4. Set up a trust. This could be an important step in protecting your assets. There are a number of types of trusts to meet the needs of your specific estate situation, i.e. Revocable Trust, Credit Shelter (Bypass) Trust, Irrevocable Life Insurance Trust, etc. Reviewing your situation with your financial planner and estate attorney will help you to find the best solution to meet your specific needs. Trusts are a means of protecting your interests for future generations. They can also protect against irresponsible members of the family, immature children, creditors, or ex-spouses.

5. Understand your state provisions on estate taxes. Every state is different with regards to estate taxes. Check to see if your state of residence has a state estate tax.

Thorough planning is one of the best ways to achieve future success.  The reason an estate plan is important is to ensure that your present wishes are carried out in the future.  Why wait until tomorrow when you can ensure your wishes are carried out today?  Think about the peace of mind this will bring for yourself and your loved ones.  Please contact your estate attorney or if you have more financial planning questions, please contact Jarrod Upton CFP® or Chris Troseth CFP® at Investors Asset Management, Inc., at 972-985-7162.

For related IAM Insights to estate planning see Searching for Clarity with Estate Planning and What Does Peace of Mind Look Like to You?

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Nothing herein should be construed as legal advice, and you should consult with a qualified attorney before taking any action. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

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Realty Income Corp. Has A Mission

By Rich Erwin on January 17, 2012

Rich Erwin, Founder, President and Chief Investment Officer of IAM.Realty Income (symbol: O) has a simpler business definition than any company I’ve studied over the past 39 years.  Its mission:  To Provide Dependable Monthly Dividends.  Yup, that’s all it’s been doing since 1969.

Today the company is a mid-sized organization with a market capitalization of $4.6 billion.  I guess I should clarify that.  Its market value is mid-sized but it operates with less than 80 employees. It makes you wonder how a company with $420 million in rental income can do well with such a lean staff.  It’s because they have a simple business strategy to back up their mission.

Realty Income owns 2,600 commercial properties in 49 states which it leases to more than 100 tenants.  In many cases, these businesses previously owned their buildings but decided they had better ways to deploy their cash than invest it in real estate.  Enter Realty Income.  They purchase the property and lease it back to the business operator on a long-term (15-20 year) net lease.  Under such an arrangement, the tenant pays operating expenses and sends its rent check to the new owner.

Realty keeps it simple in other ways.  They always buy properties with cash – no messing with mortgages.  Their strong balance sheet allows them to access banking institutions and the capital markets for funding.  If they have to move quickly to purchase a property, they borrow on short-term lines of credit.  After they own the real estate they turn around and fund it long-term by issuing new bonds and additional stock.

Careful property selection has led to better than 95% occupancy during the company’s entire existence.  The stability of this cash flow has allowed management to consistently reward its stakeholders.  Dividends have been increased annually since the corporation’s founding.  Because rents are paid monthly, company leaders decided they could pass that cash flow along to shareholders on the same schedule.  Management frequently refers to Realty Income as “the monthly dividend company”.

We are often told in life to just keep it simple. There is beauty in simplicity. One of IAM’s S.E.L.E.C.T companies, Realty Income Corporation, is good example of how a simple approach to business can be beneficial to shareholders.They also do a great job of communicating the company’s value proposition on their website — realtyincome.com.  Take a visit – and be sure not to miss the videos!

This investment takes the form of a real estate investment trust (REIT).  The REIT structure allows it to pass along income free of corporate income tax.  There are other tax considerations that may be best reviewed with a tax professional before investing.

Now here comes the good part.  The company’s dividend currently yields 5.0%.  Its payout amount has been slightly increased in more than 50 consecutive quarters.  Some of the company’s investors look at this investment as a substitute for lower-paying bonds and certificates of deposit. We view it as a conservative selection, with excellent qualities, above-average income, and the potential for modest capital appreciation.

With a company like this it’s easy to judge whether they stay true to their mission because it’s so clear.  We only wish all corporations would be so transparent in explaining their core values.

For other related Insights please see “Dividend Stocks – The Power of Compounding” and “Do Bonds Still Serve a Purpose in Investment Portfolios?”

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of December 27, 2011.  Realty Income appears on IAM’s Select List of securities that the firm recommends. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

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Do Bonds Still Serve A Purpose In Investment Portfolios?

By Rich Erwin on January 3, 2012

Rich Erwin, Founder, President and Chief Investment Officer of IAM.Yes, they do.  However, it’s getting harder and harder to embrace them for return.  Instead, they serve a purpose as a counterbalance to equities.  Historically, bonds have frequently risen when stocks have declined, and vice versa.  They’ve also been less volatile than stocks.  Finally, they generate reliable income.

During the Financial Crisis when stocks plummeted, investment grade bonds under IAM’s management declined much less.  This provided a benefit to investors with meaningful allocations to bonds as it reduced their portfolio losses.  Simple mathematics tells us it’s easier to recover from a 20% retreat than from a 30%-40% decline.  Of course, declines of this size are not common, but if they happen only once or twice when you’re no longer in the workforce the results can be devastating.

Fixed income instruments, such as bonds, are typically given greater representation in portfolios as people age.  The reason is it’s harder to recover from a significant loss in your 60s than it is in your 30s.  Also, retirees need to replace the income they previously generated as salary with investment income in order to maintain a comfortable lifestyle.  Younger investors with a desire to preserve capital may also benefit from this diversification.

Unfortunately, right now bonds aren’t doing too well as income generators.  If you were to focus on just the highest quality securities, U.S. Treasury notes and bonds, you’d quickly learn their income production is currently limited.  Five-year and ten-year notes presently yield only 0.86% and 1.88%, respectively.  Meanwhile, the Standard & Poor’s 500 stock index yields 2.15%.  This is a significant reversal from what we’ve seen over the past four decades.

Do Bonds Still Serve A Purpose In Investment Portfolios?This income divergence between stocks and U.S. Treasury securities might indicate that bonds are too popular at the moment and equities are cheap.  You must also take into account that fixed income is in fact “fixed.” Yields on U.S. Treasuries currently owned by investors will not rise over the next 5 and 10 year periods, while a number of high quality equities increase their dividends on an annual basis.

But this isn’t about whether stocks appear to be a better value than fixed income instruments.  It’s about how you achieve the safety and reduced volatility afforded by bonds in a low interest rate environment.

So let’s talk about which bonds might still be worth buying.  At Investors Asset Management, IAM, we are currently focusing on intermediate-term issues maturing in 3-7 years.  Our worry about longer dated bonds is the volatility they could incur if inflation increases and interest rates rise.  In my own experience, I saw bonds decline significantly when interest rates rose in the early 1970s.  I quickly learned that a 30-year bond can fall at a double-digit pace if interest rates surge.

Why is this?  Think about it.  Why would anyone want a 30-year U.S. Treasury bond currently yielding 2.9% if interest rates return to 5.0%, a level we’ve seen fairly recently?  What price would they be willing to pay for a low yielding security with many years left until maturity?  It certainly would be well below the purchase price.

That’s less of an issue with intermediate term bonds because you know they are going to come due at their face amount within a reasonable timeframe.  I’m not saying they won’t decline.  I’m telling you they will usually decline less and will mature in a few years.  Then you may be able to reinvest in securities with better interest rates.

Earlier on, I indicated five-year U.S. Treasury notes are paying only 0.86%.  We are not buying those securities today.  Our focus is on investment grade corporate bonds.  These are issues with a Baa3 or BBB- rating or higher.  We study the companies to reach a point at which we feel comfortable they will pay off their debt at maturity.  In late December we purchased issues maturing in about 3, 5, and 6 years with yields of 2.37%, 3.03%, and 3.71%, respectively.  They’re not spectacular, but they significantly exceed Treasury yields.  Municipal bonds also appear relatively attractive at the present time.

The percentage of a portfolio we allocate to bonds is determined by a client’s risk profile, a discussion of his or her comfort level, and the relative attractiveness of securities at the time.  Typically we come up with an allocation of 25% to 45% for someone in retirement.  That range is generally lower for clients born in later decades.  Of course, each individual is unique and IAM’s wealth managers work with you to determine which allocation is right for you.  Then we document it in an Investment Policy Statement and review that document on a regular basis.

In conclusion, bonds do still serve a purpose for many investors as anchors to their portfolio.  They generally provide relative stability and income, even when conditions become volatile.  We can’t say we’re excited about their trading levels, but it is possible to secure issues that pay income well above that offered by money market funds and certificates of deposit.

We hope this little primer on bonds is helpful to you and welcome any follow-up questions you might have.  Our Investment Team spends many hours searching out suitable securities and is happy to help anyone you might refer to us who is in search of income but wants to make sure it’s done in a SELECT manner.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

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Financial Planning Tips for the New Year

By Jarrod Upton on December 27, 2011

Jarrod Upton, CFP®, is a member of NAPFA, a professional association of fee-only financial planners.

With a New Year approaching, many people make resolutions.  Clients often ask what they should do to prepare for the next year.  There are a few key tasks which are important to consider, some of which should be reviewed more regularly than once a year.

  1. Goal Setting – This is an appropriate time to think about the financial aspect of the goals that you have set.  Some great questions to ask:  Did I incorporate my goals into my yearly budget?  How do these yearly goals help to achieve my longer term goals.
  2. Budgeting – With each new year comes new opportunities and financial curveballs.  Monthly and annual budgets are an important part of the planning process.  They help individuals to focus on savings and control spending.  Setting a budget is one of the first steps to achieving financial goals and peace of mind.  Keep in mind that budgeting is all about the balance between spending and saving.
  3. Estate Planning – Ensuring that your estate is protected and set up properly can be one of the best gifts to your loved ones.  Without proper estate planning in place, individuals are subject to the courts, government, and extra legal expenses.  When was the last time that you updated your will?  Do you have powers of attorney and medical directives in place? Do you have proper beneficiary designations on your investment and retirement accounts?
  4. Retirement Planning – In preparing for next year, it is important to review how much you are putting away for retirement.  This can be accomplished with a workplace savings plan such as a 401(k) or an individual plan such as a Roth IRA or Traditional IRA.  These plans may have income limits and contribution limits.  Check with your company to see if they have a 401(k) matching program. If you are currently in retirement, it is important to periodically review your withdrawal rate to ensure that it remains sustainable.
  5. Generational Planning – Currently the Bush tax cuts are set to expire at the end of 2012 and the $5 million estate tax exemption will revert back to $1 million.  This is a great time to consider the impact to your estate.  Some individuals are preparing by utilizing gifting and college planning for their children and grandchildren.  Consider talking with your financial planner or estate attorney to look at options for your personal situation.
  6. Portfolio Purpose and Allocation – This past year we saw a volatile market triggered by several global and domestic events.  When reviewing your investments consider the purpose of your portfolio.  Does your portfolio focus on growth, income or a combination of both?  Many investors saw swings in their portfolio but cash flow and dividends did not change (and in some cases increased from the prior year).  The beginning of the year is a good time to review your investment style and asset allocation.
  7. Financial Help – Many people say they want to manage their own financial planning and investments.  They feel that they can do a better job and at less cost.  Would these same individuals repair their own vehicles, remodel their homes, etc.?  Perhaps.  They may be able to do it at less cost, but do they actually have the time and knowledge to do the best job?  Most people spend less time each year working on their finances than they do planning their vacation.   As CERTIFIED FINANCIAL PLANNERS® our goal is to help individuals meet their financial goals and have the time to enjoy their lives.

In conclusion, why wait until tomorrow when you can plan today?  Spend some time considering the areas mentioned above and focus on which ones will benefit you the most in the New Year.  If you have more financial planning questions, please contact Jarrod Upton CFP® or Chris Troseth CFP® at Investors Asset Management, 972-985-7162.

 

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“The Mouse is (Still) in the House” — Why We Still Like Disney

By Leanne DeVey on December 20, 2011

Investment Analyst/Portfolio Manager Leanne DeVey joined the IAM team in 2008. We’ve previously written about Disney (“To Infinity and Beyond!” A Look at Disney as an Investment) and feel this is a company which continues to have terrific results and SELECT qualities.  You may be aware that Disney has diversified global operations in five media/entertainment segments: media networks (46% of fiscal year end revenues), theme parks and resorts (28%), studio entertainment (16%), consumer products/merchandise licensing (7%) and interactive media (2%).  Disney’s strong results are demonstrated by their fiscal fourth quarter diluted earnings per share which showed a 34.8% increase over the prior year quarter.

In a tough economy, how did Disney achieve this?  Disney’s consumer products/merchandise licensing, media networks and theme parks and resorts segments led the way with respective 21%, 20% and 18% operating income increases over last year.  Higher merchandise licensing revenues from the “Cars 2” movie and from Marvel characters accounted for the increase in the consumer products segment.  Media networks increased revenues due to higher advertising revenue and growth of ESPN and over 100 Disney Channels.  Theme parks and resorts had increased guest spending at domestic parks and resorts which resulted in the income increase over last year.  Now, before we get too deep into these numbers, let’s step back and take a look at Disney’s approach.

Strong leadership is one of the SELECT qualities we look for in companies and Disney has it.  Robert Iger, President and CEO of Disney, has been at the helm since October 2005.  His strategic thinking and team building, along with smart acquisitions, have positioned Disney well.  In a CEO spotlight article appearing in the 12/05/11 issue of Barron’s, Iger is quoted as saying “We believed that in a world that is more and more competitive… the value of quality brands was going to rise because of the sea of choice.  The need for speed means people will gravitate to things they know have value.”  With Disney, there are five easily identifiable brands: Disney, ABC, ESPN, Pixar and Marvel.  With this branding, Disney is now benefitting by globalizing entertainment.  Did you know Disney produced a version of the popular movie “High School Musical” in India, using local actors?

In the media/entertainment industry, Disney is also forward thinking.  They were the first company to provide video content for the iPod.   (Iger was named to Apple’s board of directors this November.)  Disney was also an original partner in the online content portal Hulu.  As more and more customers change their viewing methods, digital TV distribution, internet and pay-per-view transmissions will have to change to meet the demand.   Disney doesn’t shy away from technological advances.  This is evidenced by their $7.4 billion purchase of Pixar Studios in 2006.  To quote Iger “Pixar is the most important thing that has happened to this company in the past six years.” He states “the technology and innovation Pixar brought with it, the talent, success, brand value and bottom-line effect, have been far greater than what we paid.”

Let’s leave you with one parting thought about Disney (with apologies to Kermit the frog, appearing in the newest Disney movie “The Muppets”).  It IS easy “being green.”  Disney was ranked 23rd in Newsweek Magazine’s 2011 Green Rankings.

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  Disney appears on IAM’s Select List of securities that the firm recommends. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

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Don’t Follow the Crowd – Let It Follow You

By Rich Erwin on December 5, 2011

Rich Erwin, Founder, President and Chief Investment Officer of IAM.We’re often told by clients that they chose IAM because of our expertise in individual securities.  They indicate a preference for well chosen, ethical companies over a broad mutual fund portfolio mimicking an index or one acquiring shares regardless of company operating practices.  Unfortunately, very few firms follow this approach because they view it as too time consuming or they lack expertise in security analysis.

This has been our only approach since IAM’s founding in 1983.  We realize it sounds good but we need to execute well to make it work.  Our results for growth, balanced, and income accounts are available on our website.

What I’m going to share with you today is one of the secrets to our stock selection methodology.  We move quickly to stay ahead of the crowd.  You may have heard in recent times that Warren Buffett purchased Burlington Northern and initiated a large position in IBM, two of his largest buys ever.  Well, IAM was in both stocks long before Warren stepped in.

Everyone nowadays seems to be touting dividend stocks.  IAM published an audio CD in September 2002 emphasizing the merits of high quality companies with better than average dividend payouts.  We also wrote about a recent hot topic — cloud computing –early in its evolution (May 2009 – Are There Profits In The Clouds?).

We don’t always succeed, but try very hard to get a jump on bigger players in our industry.  Why?  Because they’re the ones that move the markets.

As we look at the current environment, two industries appear to be rising from the ashes – autos and homebuilding.  In most past economic cycles those industries led the recovery.  Can you suppose why?  It’s because the majority of recessions are caused by tight monetary policy (higher interest rates) that limits purchases of high ticket items.  This time around it has been exactly the opposite.  Interest rates are low because people have overspent and need to pay down debt.  They haven’t been in a hurry to purchase big ticket items.

Don't Follow the Crowd - Let It Follow YouNevertheless, we think the time has come to take a look at successful companies in these industries.  There are clear signs today that auto sales are on the mend.  Last month was the best model month in more than two years!  Homebuilding also seems to be improving from a low base.  Housing start figures are showing signs of recovery.

So, how do we play this budding trend?  It’s particularly hard since we can’t find automakers or home builders that meet our SELECT criteria.  The answer is we participate in companies that supply these industries or benefit from their recovery.

Our favorite auto-related stock is Johnson Controls.  It is a major worldwide components supplier.  It manufactures everything from seating to door systems to batteries.  In the housing sector we like Rayonier.  Although it’s uniquely respected for its specialty fibers business, the company also produces logs for lumber and sells land to housing developers.  We also like Tempur-Pedic, a fast-growing global bedding supplier. Typically, furniture and bedding sales perk up with a rise in housing completions.

We would like to find more participants in these sectors but refuse to water down our SELECT framework to jump on a rising trend.  Our Investment Team, though, will continue to work hard to keep IAM’s clients ahead of the crowd.

 

Important Consumer Disclosure

This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions.  This communication contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.

The Select List represents all of IAM’s recommendations as of August 15, 2011.  A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge.  IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice.  The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.

IAM is an SEC registered investment adviser with its principal place of business in the State of Texas.  IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients.  IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements.  Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.

Investors Asset Management, Inc. ­ 5000 Legacy Drive, Plano, TX 75024 ­ www.iaminvest.com ­ 972-985-7162

 

 

 

 

 

 

 

 

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Who is IAM?

By Jarrod Upton on November 30, 2011

Jarrod Upton, CFP®, is a member of NAPFA, a professional association of fee-only financial planners.

As we think about our clients, friends, family, and those of you that may not know us as well, we wanted to discuss who we are as a company and some of the changes that have occurred.  Our focus continues towards excellence in financial planning, investment services, and the overall client experience.  In the coming months, additional IAM Insights with employee spotlights will be provided so that you get know to our staff better and how we focus to better serve you.

Who is Investors Asset Management, Inc. (IAM)?

Financial Planning. Socially Responsible Investing.

IAM provides both comprehensive and need-specific financial planning services while investing in ethically sound companies to help individual investors and organizations achieve long-term sustainability.  We serve clients in 26 states throughout the U.S. on a fee-only basis.  Established in Plano, Texas, in 1983, IAM has seen its clients’ needs grow beyond investment portfolio management to the broader challenge of wealth management.  In addition to its philosophy of long-term investment in the very best companies, IAM employs its years of education, training, and real-world experience to help individuals find the financial independence they desire.  We apply a socially responsible investing (SRI) approach to security selection and portfolio management. We refer to our work as “ethical investing” and use a S.E.L.E.C.T. methodology developed over several decades to meet quality standards. Our composite investment performance is available for Growth, Income, and Balanced portfolios.

IAM’s financial planning team provides highly-personalized service, where we strive to understand your most important goals and team with you in finding ways to achieve them. Please contact us at our Plano, Texas office (in the Dallas area) at any time to ask questions or discuss your personal needs.

Why choose IAMWhy choose IAM?

  • IAM takes care of its clients.
  • IAM is committed to providing the highest level of service and building client relationships that last a lifetime.
  • IAM’s client service model is built on a foundation of compassion, understanding, expertise and trustworthiness.  Our focus on individual attention makes the difference.
  • IAM enjoys trusted relationships with the children and heirs of its valued client families.
  • IAM uses a professional team approach to fulfill both the financial planning and investment management needs of its clients.

The Financial Planning/Client Relationship Team:

  • Works with clients through the financial planning process.
  • Provides in person and online retirement planning, budgeting, tax planning, stock option analysis, portfolio stress testing, cash flow analysis, and income planning.
  • Also included are estate planning, tax analysis, college funding, charitable giving, and retirement account advice.
  • Helps individuals set goals and monitors progress towards financial independence.
  • Guides each prospect through the transition to becoming an IAM client.
  • Provides personalized attention to each client.
  • Plans and executes special client events.
  • Promotes IAM within the financial community and greater DFW Metroplex.
  • Follows up on valued client referrals.

The Investment Team:

  • Incorporates quality standards in security selection and portfolio management with a strong focus on ethically sound, socially responsible companies.
  • Reviews and analyzes all investment decisions in Investment Committee.
  • Performs the entire investment selection process in-house.
  • Provides clients with customized investment plans and asset allocation selections to best meet their investment goals and needs.

The Operations Team:

  • Maintains the accuracy of client records by using state-of-the-art portfolio management system and client relationship management system.
  • Provides in-house account administration.
  • Ensures compliance with the SEC.

As a Fee-Only Registered Investment Advisor we have a fiduciary responsibility to our clients.  A fiduciary responsibility requires us to have both a legal and ethical relationship of confidence and trust with our clients.  Instead of selling you a product we want to ensure that we focus on meeting the needs of each and every client with their best interest in mind.  Our reward for our work is impacted by the success of our relationship with you and your account.  We team up with clients to clarify and establish personal financial goals and establish plans to accomplish them.

IAM has developed a strong and capable network of professionals in related fields to assist with tax preparation, estate document drafting, life insurance analysis, long-term care, disability, and health insurance coverage.

We welcome you to click on the following links to view IAM’s financial planning videos, including What Is Financial Planning and Why IAM’s Financial Planning Services Are Unique.

IAM cares about the community and encourages its employees to be good citizens. Team members volunteer with local charities and groups and put in many hours of community service each year.

IAM pledges to conduct business in a professional manner with ethics and integrity.

 

 

 

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