Oregon Production Investment Fund Tax Credit Auction - July 10th

Every year in July the Oregon Production Investment Fund (OPIF) auctions tax credits. According to the accountants I work with you can take this credit as a charitable deduction on your federal income taxes and additionally take the tax credit as a tax credit on your state taxes .  The tax credits are generally beneficial if you pay Alternative Minimum Tax and can reduce the amount of tax you owe in April by buying in July.

One great way to use these credits could be if you needed to sell non-qualified stock options in say June or July which might create a tax liability when you file for taxes in April 2018.  If you met some of the ideal criteria for these tax credits instead of leaving the amount of this tax liability in cash until April you could instead buy tax credits potentially earning a larger gain than you could in a cash investment.  The biggest risk being tax law changes for the 2017 year.

Are you the ideal taxpayer to bid on the OPIF Tax Credits?

  • You have a 2017 Oregon Tax Liability. Unused credits will carryover for 3 years.  But, because of legal risk we recommend using them in the same year.
  • Your income is from Oregon exclusively (Multi-state income may impact ability to receive credit for double taxed income)
  • You are subject to the Alternative Minimum Tax (Turns a non-deductible state tax into a deductible charitable contribution)
  • You are making Estimated Tax Payments

Facts about the OPIF Auctions:

  • A blind Auction - credits are sold in $500 increments
  • Minimum bid is $475 for $500 in credit – multiple bids are allowed
  •  Credits issued to highest bidders first (ties will go to bidder who submitted bid first)
  • Payment must be made in the form of a cashier’s check, certified check or money order
  • Form TCA needs to be completed and received with Payment by July 21, 2017
  • 2015 Auctioned $10 million, 2016 Auctioned $12 million and 2017 looks to be $14 million

Process for the OPIF Tax Credits:

  • Determine the appropriate amount of credits that would benefit you by reviewing your tax situation with your accountant (the price you pay for the credits and your specific tax situation will dictate your return).
  •   Figure out your bidding plan and access the OPIF auction website as early as possible in the auction process to purchase credits.  Earlier tied bids are prioritized over later bids in an oversubscribed scenario.  The auction was oversubscribed last year.
  • Mail your payment and Tax Credit Auction form (OR-TCA) by deadline (July 21nd) to the Department of Revenue

Sample Estimates based on bidding information and a 35% tax bracket and subject to Alternative Minimum Tax (AMT).  This analysis was provided by a 3rd party and CPA:

Historical Bidding Data:

Summary for 2016:

  • $12 million in tax credits were available (bids per $500 increment)

Summary for 2015

  •  $10 million in tax credits were available (bids per $500 increment)
  • Average bid: $521
  •  Highest bid: $525
  • Lowest successful bid: $500
  •  274 bids were accepted: 200-300 were described as not successful

You can find more information about these credits through the OPIF site.

The Story on Non-Compete Agreements and How to Prevent it from Destroying Your Wealth

Non-compete agreements are becoming more prevalent in states that allow them.  This article describes some of the environmental and economic factors, particularly in the athletic industry, that are increasing their scope and prevalence.  And, goes on later to describe some of the forces to consider to avoid calamity to ones wealth.

Q1 2017 Market Summary

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Equities continued their run in Q1.  International markets led with Emerging Markets up 11.44% and Developed Markets up 6.81% followed closely by domestic stocks.  On the other hand, bonds continued their paltry returns for the quarter where domestic bonds remained in positive territory while global bonds dipped slightly into negative territory.

To see a full review of the quarter please access our Market Summary

Asset Managers Finally Recognize that Fees are the Biggest Reason for Under Performance

The biggest reason for investment management under performance are fees charged to investors in the portfolio.  The fees over ones life time can add up to millions of dollars of unnecessary expenses .  In general, about half the fees can come in the form of expense ratios, 12-b(1) and loads.  And, the other half are hidden from view, but can come from turn over, liquidity and spreads.  Although these costs vary greatly depending on the investment.  Active managements likely biggest culprit of under performance has been these fees.  So, it is no wonder that BlackRock, one of the world's largest asset managers, is looking to replace money managers with computers.

READ THE FULL ARTICLE

This is a WSJ article.  Often the WSJ does not allow direct links to their articles or limits access over time.  However, if you search (i.e.: google) the title "BlackRock Bets on Robots to Improve Its Stock Picking" you can find and access the article instead of through our website.

TODD BRUNDAGE, PRESIDENT AT PACIFIC CAPITAL WORKS, AIRS ON BUSINESS RADIO POWERED BY WHARTON SCHOOL ON "YOUR MONEY"

Todd Brundage, the President of Pacific Capital Works, joins Professor Kent Smetters of the Wharton School of Business as a contributor on the program “Your Money.” Your Money airs on Business Radio on Sirius XM on Tuesday, February 21 at 6:20PM ET / 3:20PM PT. Todd will air from 6:20 to 7pm EST.

Business Radio Powered by the Wharton School features easily accessible information on a wide range of business topics. Your money airs via satellite on Sirius XM channel 111, and through the SiriusXM Internet Radio App on smartphones, as well as online at Sirius XM Radio.  Business Radio features world-renowned and distinguished professors and alumni as regular weekly hosts, plus executives, entrepreneurs, innovators and other experts as special hosts and guests.

Learn more about "Your Money" or listen to on demand

4th Quarterly & 2016 Market Reviews

2016 played out differently than the past 2 years where the markets mostly consolidated and waited to determine what the next phase would bring?  This year domestic equities saw a rosier future in the economy, hence they had a strong year (Q4 4.2%, 2016 12.7%) where Small Caps and Value led the way lending credence to our strategy.  Small Cap Value performed the best (Q4 14%, 2016 32%).  The Small Cap and Value leadership proved pervasive throughout the international markets except in emerging markets where Large Caps out performed Small Caps.  On the other hand, global bond markets (Q4 (2.21), 2016 5.1%) out performed domestic bonds (Q4 (2.98), 2016 2.65%) where prices came down in the 4th quarter in anticipation of the fed continued tightening and a faster growing domestic economy and a strengthening dollar.

REVIEW THE FULL MARKET SUMMARY

 

Tis The Season For New Year Predictions

It is that time of year.  The time when much of Wall Street sells their bold predictions for the future.  As Steve Forbes once noted from his successful strategy, you make more money selling advice then you do following it.  The best investment strategy is to stick to your plan, following predictions will likely result in your investments dollars going to someone else.

READ THE FULL ARTICLE

Should You Change Your Investments Based on the Election Outcome?

Equity markets can help investors grow their assets, but investing is a long-term endeavor. Trying to make investment decisions based upon the outcome of presidential elections is unlikely to result in reliable excess returns for investors. At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to costly mistakes. Accordingly, there is a strong case for investors to rely on patience and portfolio structure, rather than trying to outguess the market, in order to pursue investment returns.

READ THE FULL ARTICLE

Todd Brundage, President at Pacific Capital Works, Airs on Business Radio Powered by Wharton School on "Your Money"

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Todd Brundage, the President of Pacific Capital Works, joins Professor Kent Smetters of the Wharton School of Business as a contributor on the program “Your Money.” Your Money airs on Business Radio on Sirius XM on Tuesday, September 13th from 5pm to 7pm EST. Todd will air from 6:20 to 7pm EST.

Business Radio Powered by the Wharton School features easily accessible information on a wide range of business topics. Your money airs via satellite on Sirius XM channel 111, and through the SiriusXM Internet Radio App on smartphones, as well as online at Sirius XM Radio.  Business Radio features world-renowned and distinguished professors and alumni as regular weekly hosts, plus executives, entrepreneurs, innovators and other experts as special hosts and guests.

Learn more about "Your Money" or listen to on demand

Negotiating an Executive Retirement Package

Increasingly more we are pulled into executive negotiations ensuring our client is set-up for success.  We thought the following article was pertinent to our clients when negotiating a retirement package.

Read the Full Article

This is a WSJ article.  Often the WSJ does not allow direct links to their articles.  However, if you search the title "The Biggest Mistakes Executives Make When Negotiating A Retirement Package" you can find and access the article.

Where Many Investors Fail

Many investors fail to serve their interests by looking to performance (returns) as a predictor of quality or future performance when in reality they are acting on random movements in the market .  We generally recommend looking at the structure which entails considering market philosophy, investment objectives, strategy, trading costs, and other factors.  Here is a good reason why this is true.

Read the Full Argument

Are Sanofi Savings Plan Funds Involved in Charges Against T. Rowe Price?

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Sanofi Savings Plan utilizes T. Rowe price for administration and management of its Savings Plan.  Recently T Rowe Price was accused of charging excessive mutual fund fees and a breach of its fiduciary duty.  The names of the funds described in the article "Blue Chip Growth Fund" don't appear to be in the Sanofi Savings Plan, but you still could not rule out foul play or similar behavior in Sanofi Savings Plan active mutual funds, as the charges appear to be subjective in nature as to the size of the funds and the fees paid.  Though I doubt there is foul plan in Sanofi Savings Plan's case.  You probably could rule out excessive fees in the index funds, as these indexes look to be a re-branding of Vanguards' indexes at similar prices.

Read the Full Article

Where to stash cash 2

One conundrum with the low interest environment is trying earn interest on your cash deposits.  Yes inflation is low, but when you have cash sitting around it is nice to know where your best options lie.  So, I thought those in this situation might appreciate Jason Zweig's article and review of the current environment and vehicles, particularly a site he mentions that is a good tool too: wwwdepositaccounts.com.

Read the Full Article

This is a WSJ article.  Often the WSJ does not allow direct links to their articles.  However, if you search the title "Squeeze More From Your Cash" you can find and access the article.

2016's Intial Market Decline Dilemma

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I don’t normally, or have not thus far, responded to market sell-offs.  And, I am not typically a big believer in lengthy market commentary. But, this year’s start and market decline looks to be the worst in sometime, at least since the 2009 decline.  So, I wanted to offer encouragement to potential and current Pacific Capital Works clients that the plan we have in place, see your Investment Policy Statement (IPS), is a winning strategy.  And, if we stick to it, and don’t get caught up in the market movements, we will achieve our goals, which is the reason we are investors in the first place.

 While it is tempting to believe that there are those who can predict bear markets and, therefore, sell before they arrive, there is no evidence of the persistent ability to do so. On the other hand, there is a large body of evidence suggesting that trying to time the markets is highly likely to lead to poor results.  For example, a study on the performance of 100 pension plans that engaged in tactical asset allocation (a fancy term for “market timing,” allowing the purveyors of such strategies to charge high fees) found that not one single plan benefited from their efforts. That is an amazing result, as even random chance would lead us to expect at least some to benefit.

One way to deal with these down turns is think about similar historical outcomes that resulted positively in the last 89 years (1926-2014):

  • There were 33 years (or 37% of them) in which the S&P 500 Index produced a loss during the first quarter. By the end of 18 of those years (or 55%), the S&P 500 had produced a gain. Of those 18 years, the highest return occurred in 1933, when the S&P 500 returned 54%. The best performance during the last three quarters in each of those years was also in 1933, when the S&P 500 returned 79.2%. The last time the first quarter ended in negative territory but full-year returns turned positive was just recently, when in 2009, the first quarter finished with a return of -11% and went on to recover for full-year gains of 26%.
  • There were 31 years (or 35% of them) in which the S&P 500 Index produced a loss during the first six months. By the end of 11 of those years (or 35%), the S&P 500 had produced a gain. Of those 11 years, the highest return occurred in 1982, when the S&P 500 returned 21.4%. The best performance over the last half in each of those years was also in 1982, when the S&P 500 returned 31.7%.
  • There were 24 years (or 27% of them) in which the S&P 500 Index produced a loss during the first nine months. By the end of four of those years (or 17%), the S&P 500 had produced a gain. Of those four years, the highest return occurred in 1982, when the S&P 500 returned 4.0%. The best performance over the last quarter in each of those years occurred just recently, when in 2011, the S&P 500 returned 11.8% over the last three months.

 As Warren Buffet stated about the simplicity and the difficulties of investing .  The simple part is that the winning strategy is to act like the lowly postage stamp, which adheres to its letter until it reaches its destination. Similarly, investors should stick to their asset allocation until they reach their financial goals.  The reason investing is hard is that it can be difficult for many individuals to control their emotions (greed and envy in bull markets, and fear and panic in bear markets). In fact, I’ve come to believe that bear markets are the mechanism by which assets are transferred from those with weak stomachs and without an investment plan to those with well-thought-out plans—meaning they anticipate bear markets—and the discipline to follow those plans.  A necessary condition for staying disciplined is to have a plan to which you can adhere. But that’s not sufficient. The sufficient condition is that you must be sure your plan avoids taking more risk than you have the ability, willingness and need to take.

Todd Brundage Airs on Business Radio Powered by Wharton School on "Your Money"

Todd Brundage, the President of Pacific Capital Works, joins Professor Kent Smetters of the Wharton School of Business as a contributor on the program “Your Money.” Your Money airs on Business Radio on Sirius XM on Tuesday, September 29th from 5pm to 7pm EST. Todd will air from 6:20 to 7pm EST.

Business Radio Powered by the Wharton School features easily accessible information on a wide range of business topics. Your money airs via satellite on Sirius XM channel 111, and through the SiriusXM Internet Radio App on smartphones, as well as online at Sirius XM Radio.  Business Radio features world-renowned and distinguished professors and alumni as regular weekly hosts, plus executives, entrepreneurs, innovators and other experts as special hosts and guests.

Learn more about "Your Money" or listen to on demand

Is Your Trusted Financial Advisor Working for You? (Part I & II)

Is Your Trusted Financial Advisor Working for You? (Part I)

It is not uncommon to hear in investment conversations about someone’s trusted advisor who takes good care of them.  However, within the investing landscape a glaring dilemma exists with these individuals understanding.   The compensation system and the exclusion of the fiduciary role of your advisor can run counter to your interests.  And, it is well documented in the literature that when the incentive system of your advisor runs counter to your interest, often their behavior follows…leaving your trusted advisor not so trusted.

Many of us assume all advisors are similar.  And, once you feel you have found someone you can trust then you believe you have the winning combination for success.  However, not all advisors are the same.  In fact, how your advisor gets paid can likely communicate to you how well they can be trusted and how likely they will work on your behalf.

The vast majority of financial advisors are sales people.  This method of client interface has been very effective for the “Wall Street” firms.  These very likeable and apparently trustworthy people concentrate on distributing the products and services of the firm they work for that designed them to generate a profit and to be easily sold.  I might also add I think these sales peoples’ relationships are genuine, but they don’t make decisions beyond the sales execution and often don’t have the financial knowledge to understand the investment structure that best benefits a client’s interest.   It is quite common for these sales people to be well liked.  It is why they took up the vocation of sales in the first place.  And, those who don’t leave potential clients with this warm and fuzzy feeling and don’t get the new business get thrown out of this, often described, ruthless industry quite quickly.  But, in no way is this particular sales structure good for you. 

So, even though you feel like you can trust your advisor, it is important to understand how your advisor is paid and how that system incentivizes their behavior.  We will discuss the incentive systems, the complexities of them and what is most likely to work best for you in our next posting, “Is Your Trusted Financial Advisor Working for You?” (Part II)

Is Your Trusted Financial Advisor Working for You? (Part II)  - August 12, 2015

There are multiple ways advisors get paid by their clients.  The public investing community isn’t usually aware because most advisors try to look like the independent fiduciary that is representing your best interest and are vague about methods of compensation.  And, frankly, unless your advisor discloses this to you, you will likely never know the full extent of the compensation picture.  So, it is important to ask your advisor how they are paid and what fees you pay.

For clarity I have divided the compensation system into two types of payment:  (1) Fee-only and (2) Fee Based.  Fee only advisors get paid directly by you in a variety of forms.  But, they will disclose that fee to you and that is the only fee they receive for their services.   Fee-only advisors are generally considered the most transparent and the most likely to best represent your interest because conflict of interest is minimized.

On the other hand, Fee Based Advisors may not disclose their compensation or only some of it; which is why many clients don’t know what they are paying or only know about the fees charged on your statements.  Additional fees could be in an ongoing insurance commission, an investment fee that the fund kicks back to the advisor (12b-1), spreads in the transaction of an investment (compensation typically gained in bond trades from differences in price your advisor firm transacts and purchases or sells to you for), or commission on the sale of an investment.  Financial services clients paying advisors through Fee Based methods will find the method of compensation very convoluted, but more importantly, likely are bringing in an incentive system to the advisor that no longer includes looking out for the client’s best interest because they are bringing other compensatory relationships into the equation.

And, even more confusing is many Fee-Based advisors, and some calling themselves Fee-Only advisors, complicate these compensation methods by collecting fees from a combination of payment types, a sort of wolf in a sheep’s clothing.  Some might call themselves a Fee-Only Registered Investment Advisor (RIA) firm and charge a fee like a fee only advisor, all seeming very trust worthy.  But, the actual employees of the firm might also work for another employer, typically a brokerage firm or insurance company, where they receive additional income from these other forms of compensation and therefore, as employees, are not a Fee-Only advisor.  The usual scenario occurs when a dually employed advisor also works for a brokerage firm and/or an insurance agent, selling you questionable insurance contracts or putting you in investments into expensive vehicles which provides these advisors additional income, or provides them a commission on the spread of a sale.

Hopefully this is not the case for you?  Unfortunately, it is likely happening more often than not, which makes one question the often overheard statement of one’s trusted advisor.

It is clear, if you are going to use an advisor, which is poignantly clear in the research of client benefits, that utilizing a “real” Fee-Only Advisor and Advisor Representative is the most beneficial choice for your financial goals and health.

Please contact us if you would like to set-up a financial evaluation and have your current strategy or financial health reviewed (http://pacificcapitalworks.com/getting-started/ ).  We are the premier investment advisor for entrepreneurs and executives in a few select industries ( see http://pacificcapitalworks.com/clients/)

Todd Brundage, President