Investors Asset Management, Inc.

3 Tips for Avoiding Pitfalls in Medicare Enrollment

Neil Krishnaswamy — Fri, 21 Dec 2012 19:09:25 +0000

If you’re approaching the age of 65, you’re probably aware that you may soon be eligible for Medicare. But do you know the enrollment rules and how they might affect you? In this week’s Insight, we’ll try to cover some of the key enrollment rules you need to know.

Basic Parts of Medicare

It may be useful to first cover the basics and define some terms. There a few pieces to your Medicare coverage. Part A is the Hospital Insurance. It helps cover the costs of inpatient care in hospitals, as well as some long-term care you might receive in skilled nursing facilities, homes and hospices. There is usually no cost for Part A as long as you or your spouse paid Medicare taxes while working.

Part B is the Medical Insurance. It helps cover services from doctors or other health care providers, outpatient care, home health care, medical equipment and some preventative services. Part B premiums start at base amount of $104.90 per month (2013) and rise based on your last reported modified adjusted gross income. When we combine parts Part A and B, this is often called Original Medicare.

The alternative to using Original Medicare is to purchase a Medicare Advantage plan, which is also known as Part C. These plans are run by private insurance companies and include all the benefits of Part A and B. It usually also includes part D, which is the prescription drug coverage.

Now you’re not obligated to purchase Part C. You may choose Original Medicare and add Part D to your coverage. If you go this route, you may also add supplemental coverage for medical expenses not covered or only partially covered by Medicare. This is often called a “Medigap” insurance plan. Ideally, it’s best to decide early if you’re going to use Part C or Original Medicare (with Medigap) because you may encounter complications if you try to switch from one to another.

If you’re about to become eligible for Medicare and you’re already receiving social security benefits, you’ll automatically be enrolled in Part A and Part B in the month you turn 65. That is usually very convenient for folks who fall in this group! Your Part B premiums will simply get deducted from your monthly social security benefit.

Tip 1 – Sign up During the Initial Enrollment Period

If you’re close to 65 but not yet getting Social Security benefits, you’ll need to sign up if you want Part A and B. You can sign up during the initial enrollment period, which is a 7-month window starting 3 months before the month you turn 65 and ending 3 months after the month you turn 65. Simply contact the Social Security department during this period. We recommend you enroll in the first 3 months of the enrollment period to prevent your benefits from being delayed.

If you don’t sign up during this initial enrollment period, you can still sign up during the general enrollment period (Jan 1^st to March 31^st each year). But your coverage will not begin until July 1^st of that year and you may have to pay higher premiums.

Please be aware there is a severe penalty for waiting long past your enrollment period. It is NOT a one-time penalty. If you don’t sign up for Part B when you’re first eligible, you may have to pay increased premiums for as long as you have Medicare! This premium may go up 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it. We hope this is enough incentive for you not to delay!

Tip 2 – Sign up During the Special Enrollment Period

What if you are already covered by a group health plan based on the current employment for you or your spouse? In this case, you can usually stay on your plan and avoid a late enrollment penalty¹. But when you’re ready to enroll in Medicare, you’ll need to do it in a special enrollment period. This is anytime you’re still covered by the group plan (but at least age 65) or during the 8-month period that begins after the employment ends or coverage ends, whichever happens first.

It’s important to note that if you choose to go on COBRA after leaving the group plan, this is NOT considered an exception and the clock will start on your 8-month period. So if you choose COBRA, you must not wait until this ends (often 18 months) before you enroll in Part B. Also, enrolling in Medicare will likely bring that COBRA coverage to an end.

If you do not enroll during the special enrollment period, you will have to wait until the general enrollment period. This could result in higher penalties, but you would also risk having no insurance coverage for some number of months if your employer coverage ends unexpectedly! If the scenarios described above apply to you or your spouse, we recommend talking to your benefits administrator to understand how your employer coverage will work with Medicare.

Tip 3 – Sign up During the One-time Enrollment period for Medigap Policies

Finally, if you’d like to have Original Medicare with a supplemental insurance (Medigap) policy, there’s a special rule you need to know. You have a one-time 6 month open enrollment period starting the first month you turn 65 AND are also enrolled in Part B.

Once you enroll in Part B, your open enrollment period begins and cannot be changed. This period gives you the guaranteed right to buy any Medigap policy sold in your state regardless of your health status. Since the insurance company cannot use medical underwriting during this period, they cannot refuse to sell you any policy they offer nor charge you more because of past or current health problems.

To wrap up, Medicare can be a complex area to navigate. We hope these tips may help you avoid some of the pitfalls. To learn more, we recommend downloading the Medicare and You Handbook. Also, you can call 1-800-MEDICARE or visit www.medicare.gov.

Costs and coverage for Medicare health plans and prescription drug plans change each year, so you’ll want to review your plan materials to make sure you’re adequately covered for the following year. If you have questions or concerns about Medicare, please contact us and we’d be happy to help point you in the right direction.

For an employer who has 20 more employees, the group health plan will pay first before Medicare. But if the employer has less than 20 employees, Medicare pays first. In this latter case, late penalties may apply if you do not apply for Medicare during the initial enrollment period.

Important Consumer Disclosure

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

Matthews Asia Funds: 3 Qualities We Like and 2 Funds We Find Appealing

Leanne DeVey — Tue, 18 Dec 2012 15:16:19 +0000

Matthews Asia Funds have been investing in Asian companies since Paul Matthews founded the firm in 1991. IAM has held some of these funds in client accounts for over 10 years. What benefits do they offer? We’ll answer that question, as well as highlight two funds we’ve recently been adding to client accounts.

Focused Exposure to Asia

Matthews Asia is the largest Asia-only investment specialist in the United States. The firm offers thirteen funds with unique strategies, and geographic focus. These funds provide US investors the opportunity to participate in Asian growth. Consider that in 2009 China surpassed the US in auto sales. By 2011 its citizens had a total of 100 million passenger cars. South Korea leads the world in broadband access with over 80% of households connected. And India in 1990 had two television channels and now has several hundred. Domestic consumption, especially in service oriented areas will be a big growth driver, as the Asian middle class expands over the next decade.

Specialized Research in Emerging Markets

The funds’ portfolio managers and investment analysts are comprised of professionals who have studied or traveled extensively in Asia and are fluent in local languages and dialects – from Mandarin and Cantonese to Vietnamese, Korean, Hindi, Japanese and others. Their teams meet face to face with businesses, as well as observe economic conditions. Matthews’ Weekly Asia Update newsletters have focused on such topics as “China’s Thirst for Oil,” “Educating India,” and “Postcard from a Tier 4 City” and are fascinating insights into Asian countries.

Consistently Good Results

Matthews Asian Growth and Income, and Matthews Pacific Tiger are two funds held in a number of client accounts. Since inception in 9/94, Matthews Asian Growth and Income Fund has had a 10.94% return versus 3.89% benchmark. Matthews Pacific Tiger has had a 9.03% return versus its 3.89% benchmark, since its inception in 9/94. We’ve recently been adding Matthews Asia Strategic Income Fund and Matthews Asia Dividend Fund to some client accounts. As of 11/30/12, returns on the Strategic Income Fund were 12.64% for 1 year, compared to its index (HSBC Asian Local Bond Index) of 9.45%. The Asia Dividend Fund returns were 17.14% for 1 year compared to its index (MSCI AC Asia Pacific Index) of 13.08%.

Matthews Asia Funds

We find Matthews Asia Strategic Income Fund attractive because it provides fixed income opportunity as well as Asian exposure. The 9/30/12 30 day yield was 3.36%. The fund’s focus is total return over the long term and invests as much as 80% of its assets in Asian corporate and government bonds. At a recent Quarterly Roundtable, the fund’s Portfolio Manager Teresa Kong explained that the fund’s high allocations in the Philippine peso contributed to its sound performance. The Philippine peso was the best performing currency in the past eleven months.

We like the Asia Dividend Fund, which has a long term dividend strategy. At the Quarterly Roundtable, Portfolio Manager Jesper Madsen talked about the funds’ increased allocation to Singapore holdings in the areas of consumer staples, industrials and financials. This helped boost fund performance.

Asian emerging markets have some inherent volatility due to political, social and economic changes that come with growth. However, as individual wealth and consumption rises, technology spreads and economic and government institutions stabilize, Asia should be a dominant economic force.

Important Consumer Disclosure

The Select List represents all of IAM’s recommendations as of September 7, 2012. The Select Dividend List as of May 22, 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

Everybody Knows Costco, Right?

Leanne DeVey — Tue, 27 Nov 2012 04:01:30 +0000

A few facts you may not know

Years ago when some family members lived in Alaska, they used to describe their outdoor adventures – fishing for salmon, avoiding the neighborhood moose and treasuring Northern Lights — and their shopping visits at Costco. Costco?! Yes, Costco. Costco consistently provided them with good quality products, reasonable prices and an availability of items in their local store. There weren’t many retailers, so shopping there was sort of an indoor adventure.

Historically speaking, “Price Club” opened in 1976 and operated in a converted airplane hangar in San Diego, California. Original customers were small businesses but the company discovered it could expand to include non-business members and obtain better supplier pricing. In 1983 the first warehouse using the Costco name opened in Seattle and grew to $3 billion in sales in less than 6 years. In 1993 the companies merged into PriceCostco and in 1997 became Costco.

Costco currently operates 602 stores around the world with 72% in the United States (including Alaska and Hawaii), 16% in Canada and 11% outside North America. It plans to expand with 27 to 30 stores in the next year. Among a number of topics in a recent conference call, Costco’s management discussed the challenges of finding and developing foreign sites in Asia and Australia. Often there are difficulties with obtaining real estate, approval of permits and constructing stores, especially in urban areas overseas, where some stores must expand vertically, rather than the widely spread horizontal stores we’re used to seeing in North America.

Do you know how extremely efficiently Costco manages its operations? An important factor in warehouse management is the ability to turn over inventory quickly. Costco carries approximately 3,600 active stock keeping units per warehouse, compared with 45,000 to 140,000 units at its competitors. Stock keeping units, also known as SKU’s, are unique identifiers (a number or code) for each product for sale in a store. Carrying a smaller quantity of select quality items allows it to basically sell its inventory before it’s required to pay vendors. The net effect is that Costco’s vendors basically finance its inventory. And its vendors benefit because Costco pays them timely and often early, taking advantage of early payment discounts.

As a wholesale club with low prices, Costco requires an annual membership fee. While carrying many basic items, Costco also has some very special purchases. This attracts many “treasure hunting” shoppers who can’t wait to see what special deals the company is offering. If you’ve paid a fee to join a group or organization, you generally participate often to get your money’s worth. Because Costco sells inventory at cost plus a small mark up, the membership fee allows it to make a profit, which in turn is invested in store expansion and also distributed out in dividends to shareholders.

We feel the company is a good fit with our SELECT criteria. Costco has solid earnings, recently reporting robust 29% year over year profit growth. Its sound finances and low cost operations are only part of the picture. Costco ranked third in the November 20, 2012 Forbes magazine’s “Top 10 Retail Companies to Work For.” The company provides far more training than many of its “big box” retail competitors. Not surprisingly, it has strong employee retention and is a very ethical company which treats its employees and customers well. Costco is also one of the 10 IAM SELECT List holdings in the top 20 of Fortune Magazine’s “Top 50 World’s Most Admired Companies” (published March 19, 2012). Whether your “treasure hunting” occurs in Alaska or someplace warmer, chances are good that you just might have your own indoor adventure at Costco.

Important Consumer Disclosure

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

Is CPI a Good Indicator of Your Cost of Living?

Neil Krishnaswamy — Fri, 16 Nov 2012 18:38:17 +0000

Have you ever caught yourself saying or thinking “a dollar doesn’t buy me what it used to”? I imagine you have. You’re directly observing how the purchasing power of money erodes over time, which is also known as inflation. But how can we measure inflation and use it to make better financial planning decisions?

To start answering that, the Bureau of Labor Statistics (BLS) provides a big help. To measure inflation, the BLS produces 2 commonly used indices which are the consumer price index (CPI) and the producer price index (PPI). When discussing cash flow projections with clients, planners predominantly use CPI as it deals with retail prices consumers are likely to see. This is opposed to the PPI which deals with wholesale prices.

So what exactly is the CPI?

The CPI measures the change in prices paid over time by consumers for a “basket” of goods and services. This basket includes broad categories such as food, clothing, housing, transportation, medical care and so on. It excludes taxes and investment costs. From a statistical perspective, it’s impressive how the data is collected, weighted and seasonally adjusted to produce one measure which is so broadly used across the nation. By comparing the CPI from one period to another, you get a sense for the level of inflation, or even deflation, for that period. For example, if you use the period ending December 2011, the average annual inflation for the previous 10 and 30 year periods was around 2.5% and 3.0%, respectively.

How do financial planners use CPI to make projections?

Each planner will have his or her own methods. But let’s use the baseline scenario called the static withdrawal approach. Suppose I determined for a client she could retire now and start withdrawing $50,000 per year from her portfolio annually in real dollar terms. This means she could withdraw $50,000 today. If the CPI rises 3% each of the next 2 years, then she could withdraw $51,500 at the start of year #2 and then $53,045 at the start of year #3. Distributions would continue be adjusted like this for the remainder of her retirement.

While nice in theory, this approach is missing the fact that an individual’s spending is likely not going to rise in lock-step with the CPI. For some of you, your personal standard of living might require a spending level above the inflation rate as measured by CPI. However, I suggest for the majority of folks, your spending over time will be below the CPI inflation rate. Why is that? I think it is because of our ability to adapt. If the cost of a car we like to drive rises, we are not obligated to buy that car. Although admittedly many of us are loyal to our brands! In reality, we have the ability to comparison shop and find alternative products that meet our needs. In the case of a car, maybe even a used car will suffice. We can simply call this the substitution principle.

What are the implications of overestimating or underestimating inflation?

Here’s an example of one retirement income scenario. Suppose I had a 65 year old client with a portfolio of a little over $1 million. I estimate that she could withdraw $50,000 in real dollars for a 30 year period based on an assumption of 2.5% annual inflation. If we kept all variables the same but it turns out her actual cost of living grew at 1.5%, she would project to have over half a million dollars available at the end of the 30 year period! While this might meet her goals for leaving an inheritance, it may also mean she sacrificed the ability to withdraw an extra $6,000 in real dollars every year.

On the flip side, if her actual cost of living grew at 3.5% instead of 2.5%, it would mean she’d have to live on roughly $6,000 less each year of retirement. Please keep in mind this example is only for illustration purposes. In reality, a financial planner can help clients run more dynamic spending policies that adapt with different economic environments. But I hope this shows you the challenges and implications we face in estimating future expenses.

So what do you think? If you’re in or approaching retirement, what expenses have been rising the most for you? Are there any expenses that you find are falling? Do you notice your own ability to adapt by using the substation principle? We’d love to hear from you. One of our goals at IAM is to help clients make wise distributions from their portfolios. And while the CPI is great, there may be no better “substitute” for the stories you share with us.

Important Consumer Disclosure

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

Forget Groupon – Reap Long Term Savings through Refinancing

Neil Krishnaswamy — Tue, 30 Oct 2012 14:02:33 +0000

Have you heard about the Federal Reserve’s bond buyback program announced last month? This is commonly called quantitative easing. This latest program has earned the name “QE3” since the Fed has done this twice before. In essence, the reason for QE3 is to stimulate the economy and bring down interest rates.

How Can You Take Advantage?

Areas that should be most immediately impacted by QE3 are the auto and housing industries. Since QE brings down long-term borrowing costs, items like cars and houses become more affordable.

Is the proof in the pudding? Well, at the time of this writing, the average 30-year fixed rate mortgage rate is 3.46%, and the average 15-year fixed rate is 2.84% ¹. Both are near-record lows.

If you’re a first-time homebuyer, this is a great opportunity to take advantage of these attractive rates. This assumes your credit is strong enough to qualify since banks have become far more stringent in their loan underwriting.

If you’re an existing home owner, compare current rates to your present mortgage to see if you can benefit from refinancing. Generally refinancing is a good idea if you believe you will stay in your current home for reasonably long length of time. It’s true the less equity you have in your home, the bigger the challenge it is to get bank approval. Obstacles aside, if you’ve never thought about refinancing, let me share some examples of the potential benefits.

Sample Homebuyer Scenario

Suppose you bought a home just 3 years ago for $300,000. At the time you put a 20% down payment and financed the remaining $240,000 for 30 years at a fixed 5.0% rate. Your monthly payment for principal and interest would have been $1,288, and today your loan balance would be $228,825. What’s your best option?

Option #1: Stay the course

By making no changes and staying the course, your monthly mortgage payment will remain at $1,288. Assuming you make no additional principal payments, you will pay off your mortgage in 27 years and pay a total interest (starting from now) of $188,608.

Option #2: Refinance into a 15 year loan

Let’s assume the cost of refinancing is $5,000 and if you can roll these fees into your existing balance, option #2 brings your new loan balance to $233,825. With the 15-year interest rate of 2.84%, your new monthly payment would be $1,597 which is actually $308 higher than what you’re currently paying. The trade off to this higher monthly payment is that you extinguish your mortgage 12 years sooner and pay “only” $53,603 in total interest payments. This saves you a whopping $135,000 in total interest payments compared to the option of staying the course!

Option #3: Refinance into a 30 year loan

Let’s say you like option #2, but the increased monthly payment is too hard on the budget. With the same assumptions as above, option #3 gives you a new loan balance of $233,825. With the 30-year interest rate of 3.46%, your new monthly payment would be $1,045 which is $244 lower than what you’re currently paying. The trade off to this substantially lower monthly payment is that you pay off your mortgage 3 years later than you normally would.

You’ll want to be careful of choosing options that extend your pay off period because you may not want to pay a higher overall interest. But note in this case you would pay $142,290 in total interest which is still $46,000 less interest compared to staying the course. Alternatively, you can keep up your initial mortgage payments of $1,288 (assuming no pre-payment penalties apply), pay off the mortgage in less than 22 years and save even more on interest!

We hope these examples help you understand the savings potential that may result from refinancing. Debt management is an area which should be approached with care and caution. But if you use debt wisely, aided by today’s low interest rate environment, you can enhance your ability to build and preserve your wealth. Remember that housing prices tend to go up with inflation. If you have a fixed mortgage rate and inflation becomes a serious issue in the future, you may rest easier knowing you will be paying off your loan with cheaper dollars.

To conclude, the Federal Reserve Board indicates it expects overall interest rates to remain at a low level for the next 2-3 years. So by taking action soon and locking in attractive rates before the Fed changes course, you may just be able to build yourself an optimal inflation hedge. If you’re cost conscious, by all means keep finding deals through sources such as Groupon! Just don’t miss out on opportunities like refinancing for significant long-term savings. If you have questions on mortgages or other debt management issues, we’d love to hear from you.

1) http://www.bankrate.com/

Important Consumer Disclosure

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

It’s THAT Season Again!

Leanne DeVey — Tue, 23 Oct 2012 15:10:25 +0000

Fall is one of my favorite seasons, since here in Texas the temperature finally starts to cool off and we no longer have to wear summer shorts to Friday night high school football games. Meanwhile in the investment world, we’re currently in the midst of “earnings season.” About now, many large publicly-traded companies release their quarterly earnings reports. The timing occurs the month after a company’s quarter ends. So January, April, July and October are months full of earnings releases and media reports. You should understand how earnings season works because it can help you gain perspective about the price fluctuations in your own investments.

Alcoa unofficially kicks off earnings season four times a year, as it’s the first company to release its earnings report. Not all companies report during earnings season, as their release date depends upon when the company’s quarter ends. Company announcements usually include unaudited financial statements, comments about business conditions and earnings guidance. Guidance provides insight into management’s expectations of business activity for the next quarter or year.

Most companies hold conference calls which coincide with their earnings announcement. This allows listeners to hear management give more “color” by adding details about business activity and also provides industry analysts an opportunity to ask management some in-depth questions.

IAM’s investment team monitors SELECT List companies and follows their earnings announcements. We like to see what management teams have to say and whether companies’ actual earnings per share beat analysts’ consensus estimates. The consensus numbers are the sum of all available analysts’ estimates divided by the number of analysts. It may not always be the best gauge of a company’s profit progress because it’s only as close as the average of the most accurate and least accurate analysts combined, but a popular way of measurement.

Earnings season can be a volatile time. An earnings release can often influence a stock’s price, since in a way it’s a scorecard of how a company is doing. A company which beats estimates on earnings, but slightly misses on revenues can sometimes receive negative market reaction.
But just because it misses on the revenue estimate, doesn’t mean it won’t be profitable for the year. What’s being reported is the just-completed quarter. Future guidance provides a clue to management’s next quarter expectations and is something worth paying attention to.

The key to enjoying earnings season is to keep things in perspective. Wall Street analysts tend to have a short term approach to earnings. While nobody likes to see their stocks decline in price, there’s a big difference between stock price and stock value. Good quality companies managed by solid teams weather market ups and downs. If market over-reaction causes a dip in a blue chip stock’s price, it’s possibly an opportune time to invest a bit more in a position. Dumping a well-managed name because its earnings were off a few cents doesn’t make sense. While inferior companies just make excuses, good companies are able to right themselves and get back on course.

We hope this blog finds you enjoying autumn and earnings season as well! Please give us a call if you have any questions about SELECT investing.

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.
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

Pending Income Shortage? 5 Ideas on How to Cope

Rich Erwin — Tue, 16 Oct 2012 14:20:44 +0000

I was listening to PIMCO’s Cyclical Outlook webcast recently and the speaker concluded his presentation with something like this- “Grab income now before it gets away. Let’s get it for our clients before others do.”

Like many of our clients, IAM’s investment team has been acutely aware of the challenges facing individuals seeking income. Certificates of deposit, savings accounts, and money market funds are paying much less than the rate of inflation – as are U.S. Treasury bills and notes and other fixed income investments.

The core elements of IAM’s income-generating strategy — intermediate-term corporate bonds and dividend stocks – have generally achieved yields in advance of inflation. Yet, we all know bond yields on current offerings are nothing to write home about. We search and search for attractive bond issues and often come up empty. The worrisome part is yields continue to decline as individual investors load up on bond funds, favoring the perceived safety of fixed-income instruments over stocks. The law of supply and demand is clearly at work.

Equity dividends of high-quality companies are reliable and generally rising. To us, they appear attractive on a comparative basis (see our podcast on The Power of Dividends –http://iaminvest.com/podcast/the-power-of-dividends/). Unfortunately, investors may find it harder to lock in good dividend yields if stock prices continue to rise. Here is an example. If a $100 stock pays an annual dividend of $3, the yield is 3% ($3 divided by $100). If that stock rises to $120 before an investor gets the courage to buy it, the yield drops to 2.5% ($3 divided by $120).

So what do we do if these opportunities become scarcer? That’s a question IAM’s Investment Committee has been asking itself over the past two years. We’ve been trying to diversify our client’s income streams and make them as sustainable as possible.

Readers are already aware of our laddered bond portfolios and SELECT Dividend List of high-quality stocks (with yields greater than the S&P 500 index). What may not be so obvious are other subtle changes we’ve been making to generate income (and total return). Here are some of the ideas we’ve incorporated into portfolios:

1. Emerging market bond funds
2. Commercial real estate and timber REITs
3. A master limited partnership and pipeline mutual fund
4. Asian equity dividend funds
5. An income bond fund with representation in asset-backed securities.

Currently, each of these generates income in the 3-5% range. We’re continuing to scour the investment landscape for additional ideas that meet our SELECT criteria. The PIMCO speaker’s statement about grabbing income before it “gets away” may or may not prove to be prescient. Nevertheless, we think maintaining a quest for sustainable income makes sense while the Federal Reserve Board is committed to low interest rates. “Income shortage” or not, we believe it just makes good sense to diversify your income stream in today’s very unique environment of slow economic growth.

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.
The Select List represents all of IAM’s recommendations as of September 7, 2012. The Select Dividend List as of May 22, 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

Giving: 5 strategies that save taxes

Neil Krishnaswamy — Tue, 02 Oct 2012 14:32:04 +0000

Giving is one of the ultimate expressions of humanity. It strengthens the connection we have with others. Whether you’re giving money, possessions, time or simply sending positive thoughts in another’s direction, it is often you as the giver who receives the most. With that said, should you be in a position where you can give some of your assets, it helps to be aware of ways you can give that don’t create a tax burden on those who receive your gift and also offer a tax benefit to you.

1 – Increasing tax deductions through charitable giving
Many Americans benefit from itemizing their income tax deductions. If you’re in this group, you’re probably already aware of the deduction available for charitable giving. There are generous limits on this deduction. As long as the receiving organization qualifies as tax-exempt, as most charities do, you can annually deduct gifts up to 30%- 50% of your adjusted gross income. The exact limit of deduction depends on the type of gift and type of charity. In an earlier article Planning for the Changing Tax Environment, I suggested it might be wise to defer charitable gifting to future years where tax savings might be greater. The flip side to this argument is this particular deduction could be reduced or eliminated in future years to help with federal budget deficit reduction.

2 – Gifting appreciated securities
What about gifting appreciated securities? Suppose you’ve held a stock for many years in a taxable account with some large unrealized capital gains. Instead of selling that stock, you could consider gifting it. If the recipient is an individual, he will receive the cost basis of those securities and have to bear the capital gains tax burden if he turns around and sells those securities. But that burden might be less severe if he is in a lower tax bracket. Present tax law allows long-term gains to be untaxed if the taxpayer is in a bracket lower than 25%.

If you donate appreciated securities to a charitable organization, it has the potential to be a win-win scenario. The charity is non-taxable and can liquidate the securities without tax implications. You as the donor get to deduct the full market value of those securities on your income tax return without subjection to any capital gains taxes. What about gifting securities which have declined in value since purchased? In most cases, it’s to your advantage to sell the security, take the tax deduction on the loss and then gift the cash.

3 – Gifting real estate
Real estate is another common gift, especially among family members. Much like appreciated securities, the cost basis of the property gifted transfers to the recipient. So you should consider bequesting real estate at death through your will. Your heirs will then receive the property with a cost basis stepped up to the fair market value. But this doesn’t mean you shouldn’t consider giving away real estate while you’re alive. Suppose you were giving away a house. If the recipient lives in that house for 2 years (in a 5 year period), it can then qualify as a primary residence. In that case the tax code allows single individuals to exclude $250,000 of capital gains and married couples to exclude $500,000 (if filing jointly). This rule is a relief to taxpayers as it exempts almost all sales of primary residences from capital gains taxes.

4 – Reducing your taxable estate
From an estate planning perspective, gifting is always one of the best strategies for the simple reason it reduces your taxable estate. Right now, the federal estate tax impacts a small segment of the population because $5.12 million is exempted (per individual) from this tax. But we should watch out for changes in the tax law. When the Bush tax cuts expire at the end of this year, the exclusion threshold is scheduled to revert back to $1 million, and the maximum estate tax rate is set to go up as well. This possibility alone is causing more people to take a closer look at estate planning strategies now.

5 – Gifting without gift tax consequences
Finally, it’s important to realize you can give away $13,000 each year to a person without any gift tax consequences. For example, if you have 4 grandchildren, you could donate $52,000 per year without any gift tax implications. You could possibly double that gift amount, also without gift tax implications, if you’re married because you can split gift amounts with your spouse and utilize both of your exclusions. Note that even if you give above the annual exclusion, it doesn’t mean you’ll owe a gift tax. You’ll just eat into your tax exclusion mentioned in the previous paragraph. The idea here is that the more you give away while you’re alive (above the annual exclusion), the less you can bequest at your death without an estate tax.

There are more advanced gifting strategies that can be implemented through various lifetime and testamentary trusts. Call us today to help you with implementing a strategy that is mindful of the consequences not only to you but also to those who receive your gifts.

Important Consumer Disclosure

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

NIKE: “Striving for the Best, Creating Value for the Business and Innovating for a Better World”

Leanne DeVey — Tue, 25 Sep 2012 03:21:00 +0000

Recently I purchased a 2012-2013 Netherlands authentic home soccer jersey for my teenage son as a gift. The brilliant orange fabric is strong, yet soft to the touch. Interestingly enough, NIKE made it from recycled polyester using the equivalent of seven plastic bottles. This jersey is an example of NIKE’s focus: to drive product innovation and develop products, services and digital experiences which lead the industry; to generate meaningful and deep relationships with athletes and consumers; and to create a more sustainable future.

NIKE held its 2012 Shareholders Meeting at their Beaverton, Oregon headquarters the day this article was written. President and CEO Mark Parker told shareholders that in fiscal 2012 (for the year ending 5/31/12) global revenue was $24.1 billion, up 16% and their highest growth rate in 15 years. NIKE Brand revenues grew 16%. Converse revenues were up 17%, while online sales advanced 20%. Earnings per share were $4.73, up 8% over last year, in spite of a volatile global economy and foreign currency headwinds. The 2012 London Summer Olympics were a great venue for NIKE’s products and NIKE will most likely be featured prominently in the 2014 Winter Olympics. NIKE has decided to divest two business lines – Cole Haan and Umbro – in order to concentrate on its core businesses.

During 2012 NIKE raised prices, but demand has remained high for products which resonate with athletes and consumers alike. For example, NIKE designed 32 new NFL uniforms this year and player response has been positive. You may have noticed some of these new uniforms on your favorite team.

One of NIKE’s new digital products is the NIKE+ FuelBand, a sport-test accelerometer (wristband) an athlete wears while doing their sport or activity. Afterwards, the device is plugged into a USB port or synched through a Bluetooth, to track steps, calories burned and goal progress. The device also works as a watch.

Several innovative NIKE shoe products have been introduced this year. The upper portion (above the sole) of the NIKE Flyknit Racer shoe is entirely made of thread, weighs 6 ounces and the design significantly reduces waste during the manufacturing process. On September 22 the Inneva Woven debuts, featuring a hand-woven upper, self-adjusted lacing system and a NIKE Free sole. The shoe’s emphasis is on natural movement of the foot while running.

NIKE launched a shoe recycling program in 1990 which has so far collected over 28 million pairs of athletic shoes, sent them through specialized grinders, sorted them into rubber, foam and fiber and used their “NIKE Grind” material in athletic tracks, soccer fields and playground surfaces. A great example of rubber literally meeting the road!

Clients and regular readers of this blog know that companies on our SELECT List must possess qualities that set them apart from their peers. NIKE beats the competition in many areas. An outstanding area is NIKE’s number one ranking out of 24 industry peers in Sustainalytics ratings. Sustainalytics provides independent rankings of companies on environmental, social and governance – ESG – issues. NIKE has a website page clearly defining their current and future missions. Click on this link to view it: http://www.nikeresponsibility.com/

NIKE is a company to watch for future growth and innovation. Just ask my son, who, by the way, couldn’t wait to put that jersey on and head outdoors!

Important Consumer Disclosure

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

What do Caterpillar, McGraw-Hill, and Microsoft Have In Common?

Rich Erwin — Tue, 18 Sep 2012 13:30:58 +0000

Not much, except they were all elevated to IAM’s SELECT List and SELECT Dividend List in August. We believe all three meet our high-quality, SELECT standards. Few securities analysts or portfolio managers would fail to consider them well-respected, “blue chip” stocks.

How about another little test? See if you can rank them in order of consecutive years they’ve increased their dividends. The answer is at the bottom.

These are the types of companies we like. All are industry leaders with clear visions for the future. Each is executing on opportunities it sees over the next 3-5 years. All three have strong balance sheets and are shareholder-friendly.

Caterpillar is the world leader in earthmoving and mining equipment. It also manufactures diesel and turbine engines. Demand for its products has been strong in the U.S. and emerging markets. The former is benefiting from a construction industry recovery, while the latter is experiencing massive urbanization that creates demand for a wide variety of CAT equipment. The stock is trading approximately 30 points below its 52-week high because of worries over slowing global demand. The company is still optimistic and forecasting further profit progress. We’re going to side with its view. We also like the potential for sizable increases in the stock’s dividend rate (yield: 2.5%) because the payout ratio of dividends to earnings is low.

McGraw-Hill is a global information provider. You may recognize its primary business name: Standard &Poor’s. The company’s core business revolves around credit ratings, asset pricing, and indices. This is a growing market. Just think about all the exchange-traded mutual funds modeled after S&P indices. A big corporate event is expected to occur around year-end. The company is separating the business just described (McGraw-Hill Finance) from its educational line of books and online tools (McGraw-Hill Education). This should unleash the power of the former as a world leader with a clear focus. Shareholders will end up with two stocks instead of one. We’ll determine the attractiveness of the Education shares when more details are provided (such as dividend levels).

Microsoft is coming off of one its most successful operating system launches (Microsoft 7), based upon customer satisfaction surveys. It’s now ready to release a new version in late October with touch screen features and an ability to operate seamlessly on PCs, tablets, and phones. Simultaneously it will introduce the “Surface” tablet incorporating Microsoft 8 and including additional capabilities suited to the enterprise (large corporate) environment. Finally, a new version of Microsoft Office will follow. In addition, the company is making progress in other areas of the enterprise marketplace, including middleware and servers. The stock has been in a flat pattern for 12 years, getting cheaper and cheaper as profits have increased in all years but one and the dividend has gone from nothing to a projected 3.1% rate (with an increase due later this month).

We always like to know how Standard & Poor’s ranks companies by quality. Caterpillar gets an “A+” rating, Microsoft an “A-“ rating and McGraw Hill a (???-rating). Well, you know, Standard & Poor’s can’t rank itself now, can it? We’ve also eliminated two companies from our SELECT List – Integrys (“B”-rated) and Terex (“B-“-rated). The former is a utility that got fully-priced and began to go down a new path we weren’t sure made sense. Terex simply never lived up to the SELECT qualities we were expecting of it. I guess you would call that a misfire. We had hoped they were about to launch into a higher-quality realm and they fizzled and fell back to earth. It happens sometimes. We see these recent changes as continuing to up our quality standards from already high levels.

Now, how about those consecutive dividend increase figures? McGraw-Hill has boosted its payout 38 consecutive years earning it the Mergent designation of “Dividend Aristocrat”. Caterpillar has increased its dividend 19 consecutive years – still a great achievement. Microsoft has raised its dividend 10 consecutive years from 0 cents to 96 cents per share. From its initial dividend of 8 cents in 2003 it’s multiplied it by a factor of 12. We see all three companies delivering more increases in the future.

I hope you can see more clearly what we’re referring to when we speak of our “SELECT” process.

Please feel free to forward this Insight to others who might be interested in high-quality investing. And, as always, we’re looking for more SELECT investors. Please refer those who you think fit this profile to IAM for a no-obligation portfolio review.

Important Consumer Disclosure

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