Planning for the Changing Tax Environment

By Neil Krishnaswamy on May 15, 2012

I imagine you’re relieved to have the 2011 tax season in the books. But today I’d like to suggest it’s not too early to start tax planning for next year. The reason is the Bush cuts are set to expire at the end of this year. You remember the Bush tax cuts, right? They were enacted back in 2001, so we’ve had over a decade of “low” taxes since. Well, we might brace ourselves. Here are just 3 of the tax provisions that would change, courtesy of the Tax Policy Center, if the tax cuts do indeed expire on schedule.

The 10% income tax bracket will disappear and the 25, 28, 33 and 35 percent rates will revert to 28, 31, 36 and 39.6 percent, respectively. (The 15% rate will remain in effect)
Long-term capital gains tax rates will increase from 15 to 20 percent for filers in the higher tax brackets. It will also increase from 0 percent to 10 percent for those in the 15 percent bracket and below.
Qualified dividends will be taxed at regular income tax rates rather than the lower long-term capital gains rates.

These potential changes, like any changes in life, force us to adapt. As planners we often try to do what’s called “tax harvesting” for clients. That is we sell securities with losses to offset other gains or even a portion of earned income. This helps minimize the total tax owed for the year.

But in a rising tax environment, consider a different approach. Instead of harvesting losses, it’s often more appropriate to harvest your gains. At a high level, you identify ways to accelerate your income into this year. Another method is to defer your deductions into later years where they can offset more income subject to a higher tax rate. Let’s take a look at a few strategies that accomplish these.

Say you have a sizable unrealized gain in a stock which you’ve held for a long period (at least 1 year) in a taxable, non-retirement account. If you were planning to sell some of that stock in the near future, you might consider realizing those gains this year. If you happen to be in the 15% tax bracket (or lower) this year, much of your capital gains will be not be taxed at all until your income, including those gains, reaches a certain level. Additional gains above that level will be taxed at the current 15% rate.

High income earners may choose a similar strategy but for different reasons, due to a provision of the 2010 Health Care bill which goes into effect Jan 1^st 2013. The bill calls for a Medicare surtax, which will tack an additional 3.8% tax on your investment income and annuity distributions. The bill defines a high income earner as an individual with a modified adjusted gross income (MAGI) above $200,000 or a married couple filing jointly with a MAGI above $250,000. Note that capital gains are included in the definition of investment income. So depending on your MAGI, it could push your effective long-term capital gains rates from 15% not just to 20%, but nearly to 24%!

If you’re in retirement, should you adjust your distributions from tax deferred accounts such as a traditional IRAs? It’s worth considering. These types of distributions are taxed at the ordinary income tax rates, which are set to rise. You might benefit from taking a higher distribution from a traditional IRA this year and a lesser distribution from, for example, a tax-free Roth IRA. On a related note, some recent financial planning research¹ suggests that taking your first distributions from tax-deferred accounts, at least to the amount of your deductions, is an optimal long-term strategy for tax efficiency.

Going back to Roth IRAs, we certainly don’t hide our love for them here at IAM. A great income accelerating strategy is the Roth IRA conversion. This tactic appeals to us for several reasons as Chris Troseth, CFP® explains in his video. Along with times when higher taxes are expected, the Roth conversion is also attractive in years where you expect to be in a lower tax bracket than normal. It often triggers a large tax liability, but if you’re in a position to pay that with non-IRA funds, we encourage you to give this serious consideration as the year progresses. The chances are we at IAM will remind you too!

Along with accelerating income, another strategy is to defer your deductions. For those of you who typically itemize your deductions on your tax return, see if you can hold off taking deductions this year and defer them to a later year where there is a higher income tax rate. For example, you might see if there is a way to defer the payment of medical bills or property taxes. Another strategy, which may not initially please the non-profits, is to defer your charitable deductions.

So these are just a few strategies you might find helpful when deal with a rising tax environment. Please remember that tax strategies should be used to supplement and enhance your investment strategy. We must all resist the temptation to overreact to changes in tax laws. Furthermore, keep in mind the extension of the tax cuts is not necessarily an ‘either-or’ proposition. Congress could extend the cuts for lower income folks and not do so for higher income folks. We should get more clarity on the law changes as the year progresses. Before taking action based on any of the discussion above, we highly encourage you to consult your financial advisor or tax professional.

Journal of Financial Planning, April 2012 (Sumutka, Sumutka & Coopersmith)

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 or tax advice, and you should consult with a qualified attorney or tax professional 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

Posted in Estate Planning, Financial Planning | Tagged Certified Financial Planner®, Ethical Investing, Fee Only Financial Planner, Investors Asset Management, Plano Tx

John Deere: Committed to Those Linked to the Land

By Leanne DeVey on May 8, 2012

It all started in 1837 when a pioneer blacksmith named John Deere took a broken steel sawmill blade and invented the first self-scouring plow. He knew the nearby farmers in Grand Detour, Illinois had problems with sticky prairie soil adhering to their plow blades. John crafted a creative solution using the sawmill blade with its highly polished steel to form the plow. This was the first in a long line of innovations developed by the John Deere Company.

Fast forward 175 years to today’s globally-diverse, technologically-advanced world. What part does a farm equipment manufacturer play? And why would anyone be interested in a company that’s involved in agricultural products?

Deere believes global macroeconomic trends, such as population and income growth in developing nations, will drive increased demand for agricultural output and infrastructure development. Forecasts show by the year 2050 the world’s population will expand to 9 billion people from the current 7 billion. This growth will come mostly from emerging countries such as China and India. Incomes in these countries are increasing and diets are improving. Heightened demand for food, fuel and fiber will require agricultural output to double at the very least.

Another trend Deere foresees is the migration from rural to urban areas in these countries. For the first time ever, in 2010, over 50% of the world’s population lived in cities. By 2050, 70% are expected to be urban-dwellers. Highly productive, mechanized farming processes will be required to produce more agricultural products with a smaller labor supply. Infrastructure needs will increase with the demand for new housing, roads and bridges to support the boom in urban development. Deere’s construction segment should benefit from this trend.

True, Deere & Company is the largest manufacturer of farm machinery in the world. But Deere is much more than just a farm equipment manufacturer and supplier. Deere’s Agricultural & Construction Equipment Solutions segment produces about 75% of revenues, while Forestry & Turf Equipment Solutions (17%) and Supporting Businesses (Financial Services, Power Systems, World Wide Parts & Intelligent Solutions Group) round out the company at 8%.

Deere is uniquely positioned to capitalize on “economic tailwinds,” through its interrelated business segments, business focus and core values. The Agricultural & Construction Equipment Solutions segment is its growth business. Management anticipates increased spending by farmers for higher efficiency equipment will continue. Deere maintains a dominant market share in the U.S. and sales in Germany, France and Britain are picking up. Significant growth opportunities exist in Brazil and South America, as well as in Russia, India and China.

Deere’s goal in the Turf & Forestry segment is to grow market share and strengthen global business channels. In the Supporting Businesses segment, the Intelligent Solutions Group has a system in place to transmit real-time data for working tractors to engineers and 500-plus independent dealers who monitor service needs. In the Financial Services segment, CEO Samuel Allen says “farmers are some of the best credit risks in the world – they can’t go away and can’t afford to see their equipment repossessed.” In the latest quarter, Deere’s credit portfolio had losses of .002% — incredibly low.

IAM likes Deere’s business model, and core values. Foundational success factors such as exceptional operating performance, disciplined shareholder value-added growth and aligned high-performance teamwork are strong. Deere has had 7 straight quarters of record earnings and pays a dividend, while most competitors don’t. And they’ve increased their dividend yield at a 14% annual rate for 5 years now. Were he alive today, John Deere would be pleased!

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 April 18, 2012. 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.

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

Posted in Financial Planning, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner®, Ethical Investing, Fee Only Financial Advisors, Investors Asset Management, Plano Tx, SELECT Investing, Texas 75024

Siri Doesn’t Speak Chinese but Asian Consumers Still Like Apple

By Rich Erwin on May 1, 2012

Did you notice that Apple’s stock fell 76 points, or 12%, in April as investors grew uncertain about its first quarter earnings report? Yes, analysts began to wonder whether iPhone 4S sales might slow meaningfully following a blockbuster launch in Q4. That fear accelerated as AT&T and Verizon Wireless reported lower iPhone activations in reports that preceded that of Apple.

Our confidence in the shares never waned because we believed the global ramp-up in iPhone and iPad sales was still early in its cycle and more innovative products would follow. As it turned out, results would likely have proven modestly disappointing had Asian demand not ignited. Instead 35 million units were sold worldwide. That’s Apple’s shine, that consumers all over the globe demand its products. They may prefer its brilliant screen, ease of use, functional design, multitudinous apps, or just decide it’s a status item they must have. It doesn’t matter. Just like Americans, they’re enamored with the product.

Once reliant on strong domestic demand, Apple now generates 64% of its corporate revenue abroad. iPhone sales in mainland China rocketed 5x prior year numbers in the quarter just ended. Considering the new iPhone wasn’t launched until February, that’s quite a feat. Apple’s team deserves major kudos for getting so many handsets produced and delivered in a short-time frame. The company added China Telecom as a carrier in March, which likely means continued robust sales in the current period and beyond. Just imagine what would happen if management struck a distribution deal with China’s largest wireless provider, China Mobile!

Although the iPhone full touch interface allows its keyboard to be language-customized, Siri, the product’s voice-activated assistant, has yet to learn Chinese. You can bet she will. Expanded sales in 2013 and beyond may depend on the company’s ability to produce a product affordable to the average Asian. In China, annual per capital urban disposable income was $3,500 in 2011. A basic iPhone 4S runs $790, or 22% of that total. We’ll have to watch that trend. But this year China iPhone sales are expected to reach 137-140 million units, more than in the U.S.

Global iPad sales reached 11.8 million units in the first quarter, a 151% increase over last quarter. In fact, despite its large size, Apple’s companywide revenues rose 59%. That’s a big wow! No other company in the world has achieved such success. Getting back to the iPad, Apple’s tablet market share in China exceeds 70%. Not bad, given the fact the new iPad has yet to launch because of a lawsuit with Proview International Holdings, a near-bankrupt Chinese company. Once that suit is settled, it’s off to the races. As lead horse, the company will likely be rewarded with sales exceeding many bushels of shiny apples.

Now, let’s discuss the stock price. When first quarter earnings were reported in late January, shares rose more than 200 points through April 9 to $636, a gain of over 50% from trough to peak. Although it may be hard for many investors to conceive, we believe it possible the stock will rise as much as 40% from its pre-earnings trough of $560 to over $780 by year-end.

Then next year Siri will need to become multi-lingual!

Please contact us if you have questions about Apple or any IAM SELECT List stock.

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.

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

Posted in Financial Planning, News / Media, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner(tm), dividend income, Fee Only Financial Advisors, Fee Only Financial Planner, Investors Asset Management, Plano Tx, Rich Erwin, SELECT Investing, Texas 75024

Do You Have A Trader’s Mentality?

By Rich Erwin on April 17, 2012

While at lunch today I turned on CNBC. It frustrated me that Fast Money, a program for short-term traders, was on when I had just a few minutes to gather a tidbit or two of worthwhile information. I turned it right off, knowing little or nothing the panelists would say would be relevant to me. Their investing philosophy is diametrically opposed to that of IAM. In fact, I’d be more inclined to call it guessing (or gambling) than investing.

In this world of money management there are thousands of ways to invest. Each participant needs to find the way that works best for him or her and be consistent with it. For us, it’s high-quality, long-term investing based on SELECT qualities. We believe in it and demonstrate it every day.

There is a thought today that “buy and hold” investing is dead. Many professionals believe you have to be able to shift quickly between asset classes and individual securities to outperform your competitors. Such tactical changes are said to be based upon the portfolio manager’s superior ability to adapt to ever-changing markets.

This all sounds impressive, and for some it may work, but my opinion is if you try to out-time the market you will be right 50% of the time and wrong 50% of the time. I’ve yet to see someone create consistent long-term value by proving they are much smarter than the average investor. At IAM we see individuals hurting themselves, more than helping themselves, by guessing on market swings. Just take a look at the findings from this recent study on investor behavior.

We in fact believe that one of the best ways to add value is to be a long-term investor. Few participants in this era have the patience to keep an investment more than a year or two. We think you’ll have a better chance than most by identifying companies with sound 3-5 year strategic plans, proven records of delivering financial results, and histories of paying attention to their key constituencies: customers, employees, communities, and shareholders. For more on IAM’s SELECT approach follow this shortcut to a video on our philosophy.

Investment professionals who declare that “buy and hold is dead” may not understand that such an approach isn’t static and inattentive. Our sense of “buy and hold” is you take plenty of time to carefully select great companies and then consistently monitor them to make sure they don’t falter. If they do, it’s important to sell and move on.

You go into the markets knowing that it isn’t the next 3, 6, 9, or 12 months that matter. It’s the next 3, 5, or 10 years. You don’t invest with the goal of making 10% and then moving on to the next security. You choose securities you think can earn 100% or more over a reasonable time horizon.

I’ll reiterate this does take patience, something that is rare today. Attention spans are much shorter than they were when I started investing in the early 1970s. Yet, one thing has proven true for me over four decades. I’ve seen more investors succeed by stepping away from the crowd than following it. I also believe someone willing to become a stakeholder over an extended period of time is a true investor, not a gambler, and that feels better when you’re talking about real money.

Think about it. If you want to talk about this further, send us an e-mail or give us a call. It’s something we enjoy discussing with anyone interested in the securities’ markets.

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.

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

Posted in Financial Planning, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner(tm), Certified Financial Planner®, Ethical Investing, Financial Advisor, Financial Planning, IAM, Investors Asset Management, Plano Tx, SELECT Investing, SELECT Methodology, Socially-Responsible

Viewing Your Portfolio through a Farmer’s Eyes

By Neil Krishnaswamy on April 10, 2012

Did you know that farming and investing share much in common? On the surface these two endeavors may appear worlds apart. But if you look closely at the behavior of a successful farmer, you might find insights which could make you a better investor. This became apparent to me after reading some work by an experienced financial planner named Bert Whitehead¹. His insights gave me a new way to look at asset allocation, and perhaps the following 3 farming analogies can give you a fresh perspective on how you view your own portfolio.

Equities are the Crops in the Field – Having a sustainable crop yield is paramount to a farmer’s success. This requires planting a variety of different crops like corn, soy and wheat. Diversification is crucial because having just one crop exposes the farmer to too much risk. The onset of a disease could wipe out that crop and possibly bankrupt the farmer. Furthermore, repeatedly planting the same crop each year can deplete the soil of essential nutrients, leading to a lower yield. On the flip side, it’s possible for a farmer to have excess diversification by trying to plant too many crops. This can result in lower efficiency and productivity.

Perhaps you can see now the way crops are very much like equities. As crops provide for the livelihood of the farmer, equities provide the support for an investor’s portfolio. If properly selected and diversified, stocks can be a very suitable and efficient investment vehicle for achieving growth over the long run. With IAM’s goal of investing in ethical and social responsible companies, you might just call our approach “organic” investing!

Real Estate is the Garden – A farm often has a barn, animals and a vegetable garden. The garden serves as a great protection against inflation. If food prices rise, the farmer can sustain himself by drawing from the garden. There may also be many flowers growing in the garden which provide beauty and enjoyment. A personal residence can serve the same function for you. For one it can be a great inflation hedge. If you have a fixed-rate mortgage on that residence, you have even greater inflation protection. That’s because interest rates rise to combat inflation. Should inflation arise, you could find yourself paying off your debt with cheaper dollars. Of course we must always consider that more debt brings more risk, and ideally you will want to have an adequate cash position to service that debt if emergencies arise.

Besides a house, there are other sources of inflation protection. Gold and inflation protected treasuries (TIPS) fall in this category, although these are not currently recommended options by IAM. Investing in stocks of growing companies is another way to offset some inflation risk. See Rich Erwin’s article on Finding Growth in Smaller Socially-Responsible Companies. Of course compared to real estate, these other investments are not ones you can live in nor use to grow any flowers!

Interest Earning Investments are like the Pantry – A prudent farmer will always have a fully stocked pantry. Such a pantry may contain a variety of items like flour, grains, butter and frozen meats. A farmer never knows when lean years will hit due to events such as extreme weather and crop shortages. They need to be able to draw upon the pantry in times like these. Interest earning investments like bonds serve the same function for an investor. Different times in life require protection of capital and reliable income stream to be the most important investment criteria.

Ok, so you might not be too excited by the current yields on bonds, especially treasury bonds. But you should remember these, as well as cash, can serve as protection against deflation. In times of deflation, interest rates fall which will cause the prices of your fixed interest investments to rise. Now should deflation be a major concern to you? Perhaps not. But it’s worth being aware of the risk, even if most pundits say it’s a small one.

Let’s recap. The main take-away from these analogies are that the crops, garden and pantry are not competing with one another. They all serve a distinct purpose in a farm. I encourage you to look at the different investments you hold in the same light. Some assets will give you the potential for growth, some can protect you from inflation, and others will provide you safety and deflation protection. Each of you will have your own set of circumstances and risk tolerances which dictate how your portfolio will be weighted to address these concerns.

Keep the farming analogies in mind the next time you’re faced with an apparent ‘either-or’ scenario. Suppose you have a surplus to pay off a mortgage or invest? The right path is not necessarily which projects to give you a higher after-tax rate of return. Why not let the answer flow from your target asset allocation. You may not be a farmer, but it might be wise to tend your portfolio as if you were one.

1. Why Smart People Do Stupid Things With Money by Bert Whitehead (2007)

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.

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

Posted in Estate Planning, Financial Planning, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner(tm), Certified Financial Planner®, Environment, Ethical Investing, Financial Advisor, Financial Planning, Investors Asset Management, Socially-Responsible, Texas 75024

UPS Set to Explode European Market Share with TNT Express Acquisition

By Rich Erwin on March 27, 2012

The logistics company, UPS, is an IAM favorite investment and a stalwart on our SELECT List of socially-responsible companies. We like their long-term, ethical approach to business.

Recently, on March 19, the company announced it largest acquisition ever. The company agreed to buy Dutch delivery company TNT Express. TNT is the second largest European express company behind Germany’s DHL. Already the world’s largest integrated air and ground package delivery carrier, this purchase will make UPS Europe’s largest shipper.

To hopefully make the deal acceptable to European competition authorities, UPS has agreed to exclude TNT’s air operations on the continent (although it will gain capacity in Australia and Brazil). The key ingredient in UPS’ largest acquisition ever, though, is the road freight operations. Company CEO, Scott Davis, refers to it as the company’s vital missing piece.

Taking a step back for a moment and looking at the big picture, IAM regularly surveys the world business landscape to identify industries in which U.S.-based companies are clear global leaders. Various technology sectors qualify, as do aerospace, agricultural machinery, energy services, packaged foods, and household products, to name a few. There are also outstanding branded companies such as McDonald’s, Nike, and Coca-Cola.

With UPS and Fedex leading the global logistics field, the U.S. has a superior position in package delivery, a position it’s unlikely to cede any time in the future.

So let’s briefly compare UPS and Fedex. Excluding this pending acquisition, UPS’ revenues are 35% greater than those of Fedex, net profit margins are nearly double, return on capital is well more than twice as high, and the dividend yield is five times larger. Yes, many investors tend to prefer Fedex because it’s non-unionized, but UPS has established a sound relationship with its unions and grows in a way that benefits both employees and shareholders.

UPS’ stock appreciation has been considerably greater than that of Fedex over the past 1, 2, and 5-year periods. In fact, it has gained more than 20% more than its competitor over both the 2 and 5-year periods. When you add an additional 2.3% dividend yield, that amounts to a pretty meaningful return advantage.

In the first paragraph of this IAM Insight, we referred to the company’s long-term approach. We believe too many companies today focus on the short-term, as do their investors. It’s our Investment Team’s belief there is a distinct advantage today in focusing on long-term strengths often overlooked by other investors. We loved this quote from UPS CEO Scott in his media comments announcing the TNT Express acquisition: “We’re not looking at the next just two, three, four years. We’re a company that invests for the next 20 or 30 years.”

We see great value in a corporation that pays a 2.8% dividend and also has its eye on the long-term good of the company. An investor gets paid well to hold the stock, while management takes necessary steps to lead its industry for decades to come.

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.

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

Posted in Customer Service, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner®, Ethical Investing, Financial Planning, Investment Management, Plano Tx, SELECT Investing, SELECT Methodology, Socially-Responsible, UPS

Wisely Choosing Your Social Security Start Date

By Neil Krishnaswamy on March 12, 2012

Retirement planning is one of the most interesting areas of research for financial planners. There are so many variables and unknowns to consider for clients. But what can you control? Fortunately certain areas of retirement planning are controlled more easily than others. One example is deciding when to start collecting your social security benefits. It’s most common for retirees to start taking benefits at age 62, which is the earliest age one is eligible. But once you’ve chosen your benefit start date, your payments are generally fixed for the rest of your life, except for inflation adjustments. So how do you choose the right time for you? I think there are 5 questions you should ask yourself before making this important decision.

If I take social security early, do I understand the trade offs? – The full retirement age, or FRA, is based on the year you were born. Let’s assume for a moment your FRA is age 66. For every year before FRA you start benefits, your monthly benefit is reduced. If you start at age 62, your benefits are reduced by a total of 25%. So if your normal benefit was projected to be $2,000 per month at age 66, that benefit would reduce to $1,500 per month at age 62.

Many will take their benefits early, and there are valid reasons to do so. A family might be having trouble making ends meet on their current budget. Others may believe their lifespan to be less than average and feel it’s too risky to delay benefits. There are even rarer cases where one starts taking benefits and still has dependent children under the age of 18. Those children each become immediately eligible for up to ½ of the benefit amount, thus making the choice to take early benefits very compelling.

Will I continue to earn income when I reach age 62? – Many people are choosing to work well into their 60s and 70s. If that’s the case for you, be aware of the implications of taking social security benefits early. At the time of this writing, if you are younger than the FRA, your benefits are deducted $1 from every $2 you earn above $14,640 annually. So suppose you’re age 62, starting your benefits and planning to earn $25,000 this year through some part-time work. Your benefits would then be reduced by around $5,000. So you definitely want to be careful with earning an income and taking social security early. Note that once you reach FRA, the reductions cease and you can earn as much as you want.

Do the benefits of delaying social security outweigh the risks? – People may choose to delay taking their social security benefits for several reasons. Common reasons include having other pension sources upon which to rely, the desire to continue working, and the wishes for enhanced longevity protection.

For each year you delay taking social security past FRA, your benefits increase 8% each year until you reach age 70. From our earlier example, if you were a 66 year old expecting $2,000 per month at FRA, you would get $2,640 by waiting to age 70. The implications of this can be startling for those who take this option and live into their 90s. Many seek longevity protection through annuity products, but delaying social security benefits works much the same way. Keep in mind that by delaying, not only do your benefits rise each year, but if you continue to work and save, it further reduces the amount of assets you need to accumulate. This could be a double win.

Have I considered spousal survivor benefits? – The stats say the chance of any individual living past age 90 is around 40%. But if you’re married, the joint probability that at least one of you lives past 90 is closer to 60%. For married couples, one spouse usually can expect to have a higher benefit payout than the other spouse, simply due to having a higher earning history. If that higher earning spouse passes away, the surviving spouse will still be eligible to collect the higher benefit amount. But it’s important to know that benefit gets locked in at a payment amount based on the age benefits were started. So consider trying to lock in the largest survivor benefit by delaying benefits as long as possible.

Have I considered all the spousal strategies? – Because the rules surrounding social security are quite complex, it presents some interesting planning opportunities, especially for spouses. Take just one example. Suppose you are 66, the higher earner in your household and your spouse is 62. One strategy is to have your spouse file for early benefits. Then you file for spousal benefits and collect one-half of your wife’s benefit. You can actually do this in a way that doesn’t affect your own benefits, as long as you’ve reached FRA. You can delay your benefits to age 70 and still take advantage of the 8% per year growth discussed earlier. In the meantime, you’ve created a nice supplemental income for 4 years. There are certainly more spousal strategies available, but the main idea is to become aware of the rules and learn how they can be best applied to your situation.

In summary, knowing when to claim your social security benefits can be a critical part of your retirement income planning. This is true even if you’ve built up a sizeable nest egg. But we’re mindful this can be a difficult decision to make because there are so many variables to consider. You must at least account for your personal financial situation, family members, employment status and health. We do encourage you to reflect on the 5 questions above and consult a professional if you need help in sorting through the options.

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.

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

Posted in Estate Planning, Financial Planning | Tagged Certified Financial Planner®, Financial Planning, fixed income, IAM, Investors Asset Management, IRA, Texas 75024

What to do with a Cache of Cash?

By Leanne DeVey on February 28, 2012

Apple has been in the news recently regarding what they plan to do with their $100 billion in cash and investments. This is one of the largest cash balances held by a public company. It raises the question: what choices do corporations have with large surplus cash balances?

There are a number of possibilities for putting that cash to work. These options include the payment of a quarterly dividend, payment of a special dividend, repurchasing stock shares, acquiring another company, reinvesting cash in the company, or simply keeping the cash balance intact.

Obviously, many shareholders would love for a company in Apple’s position to pay out quarterly cash dividends. Apple previously paid a quarterly dividend for 8 years, from 1987 through 1995. Two companies on IAM’s SELECT List just began paying quarterly dividends for the first time last year – Cisco Systems and Oceaneering International. But not all organizations elect to do so. Companies focused on growth, like Fossil and Tempur-Pedic, don’t pay dividends. (For more about Tempur-Pedic, see Rich’s blog Sleep Profitably.) The expectation with growth companies is they will increase their profits markedly in the future and reinvest in their businesses rather than distribute cash to shareholders.

By contrast, mature companies tend to have little to no growth and stable earnings which they pass on to shareholders. They understand the concept of returning value to their stakeholders and are at a point in the company’s life cycle to do so. Technology companies are traditionally considered growth companies. Issuing a dividend can sometimes be seen as a signal they’re done growing.

A special dividend payment is a possibility which would return some capital to shareholders, yet avoids the expectation of a continuing stream of future dividend payments. Some companies adopt a policy of occasionally paying a special dividend to benefit shareholders. By not paying out a regular quarterly dividend it allows the company to weather tough times or to have cash on hand for other opportunities.

Repurchasing shares is another option whereby a company buys stock in the open market. It reduces the number of outstanding shares and decreases the company’s cash reserves. Often this is done when management thinks shares are undervalued, since it wouldn’t purchase stock if it believed it was too expensive. In addition, occasionally companies do this to boost their earnings per share, which impacts the stock’s price.

An attractive acquisition of a complementary company or supply chain is another opportunity to invest cash. Many factors enter into the decision to do so. Having available funds could facilitate such a purchase.

Reinvesting cash in the company, by putting it into research and development or new facilities, is also a constructive way to put cash to work. Finally, keeping the cash balance intact is certainly a possibility.

Given the recent comments of Apple’s CEO Tim Cook “it [the possibility of returning cash to shareholders] is being discussed in more and in greater detail lately. We have more cash than we need to run the business on a daily basis” suggests Apple’s board is open to doing something with their free cash flow. Oh, that all companies had such a dilemma! In Apple’s case, time will tell. If they declare a dividend, will it take a bite out of Apple? It will be interesting to see which choice they make and how it impacts shareholders.

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.

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

Posted in Financial Planning, SELECT Investing, Stocks and Bonds | Tagged Certified Financial Planner®, Ethical Investing, IAM, Investment Management, Plano Tx, Socially-Responsible, stocks, stocks declining

Sleep Profitably

By Rich Erwin on February 13, 2012

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!

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.

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

Posted in Financial Planning, SELECT Investing, Stocks and Bonds | Tagged Ethical Investing, IAM, Investment Management, Investors Asset Management, Plano Tx, SELECT Investing, SELECT Methodology, Socially-Responsible, Tempur-Pedic, Texas 75024

Dive In and Explore Oceaneering International

By Leanne DeVey on January 31, 2012

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.

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 20^th 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 21^st 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.

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

Posted in News / Media, SELECT Investing, Stocks and Bonds | Tagged Environment, Ethical Investing, Investment Management, Investors Asset Management, SELECT Investing, SELECT Methodology, Socially-Responsible, stocks

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John Deere: Committed to Those Linked to the Land

Siri Doesn’t Speak Chinese but Asian Consumers Still Like Apple

Do You Have A Trader’s Mentality?

Viewing Your Portfolio through a Farmer’s Eyes

UPS Set to Explode European Market Share with TNT Express Acquisition

Wisely Choosing Your Social Security Start Date

What to do with a Cache of Cash?

Sleep Profitably

Dive In and Explore Oceaneering International

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