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26 posts from August 2014


4 Questions a Portfolio Review Can Answer.

A free portfolio review is a common service many advisor's offer. At Prominence Capital we offer a free portfolio review designed to provide information on 4 key questions:

  1. Are you taking too much risk in your portfolio?
  2. How much are you paying in fee's?
  3. Are you invested in unsuitable or inappropriate investments designed to generate returns that are not aligned with your objectives?
  4. How did my portfolio perform during periods of extreme stress in the financial system?

Answering some of these questions can help you in determining if you have the right asset allocation and investments selected to meet your goals and objectives. Stress testing can be a useful tool in understanding your investments performance during times when markets are experiencing extreme levels of stress, such as during the aftermath of the World Trade Center attacks.

Some investments are difficult to stress tests, we help identify those assets so that you can make informed decisions as to the appropriateness of owning them. Certain investment products commonly owned, such as mutual funds, have  fee's and expenses associated with owning them. Often there are alternatives that may provide similar investment objectives and the desired risk and return objectives with more advantageous fee structures. Fee's can significantly impact the long term performance of an investment. Along with fee's looking at the tax efficiency of a portfolio will also help you keep more of the return your portfolio generates over time.

Contact us at 310-433-5378 to find out more or find us on the web at and click on the Free Portfolio Review button.

Example Asset Allocation:

Life Insurance: Part of your financial plan.

Life Insurance is designed to protect your family's financial security in the event you die. It can also be use to protect business associates as well. Many use life insurance as the basis for their financial plan. For financial planning purposes it can serve many different functions as part of your overall investment strategy. Life insurance can help you build assets to meet needs during your lifetime. Certain types of life insurance offer living benefits to the owner such as the potential of tax-deferred growth of cash values and tax-favored access to cash value.

Two types of insurance are Term Insurance and Permanent Insurance:

  • Term Insurance is similar to renting; a premium is paid and the insurance covers you for a limited time. This type of insurance does not build up cash value. The main advantage of term is that it is initially less expensive than permanent life insurance.
  • Permanent Insurance is similar to owning; three commonly used types of permanent insurance are Whole Life, Universal Life and Variable Universal Life. Each provides for the build up of cash values and riders may be available for additional benefits and features.

Which type you choose will depend on your specific financial situation and goals. Working with a planner that can bring-in insurance specialists who work to design insurance solutions that have the right benefits and features is important. The involvement of estate planning attorney's and accountants may also be necessary in order to make sure the ownership structure is appropriate while minimizing potential tax issues.


Important Tax Aspects of Securities

Capital Gains and Losses and Qualified Dividends

  • Short term capital gains are gains from the sale of securities where the holding period is 12 months or less.
  • Short term capital gains are currently taxed at ordinary income tax rates.
  • Long term capital gains are gains from the sale of securities where the holding period is longer than 12 months.
  • Long term capital gains and qualified dividends are currently taxed according to the following:
    • 0% if taxable income falls in the 10% to 15% marginal tax brackets
    • 15% if taxable income falls in the 25%, 28%, 33% or 35% marginal tax brackets
    • 20% if taxable income falls in the 39.6% marginal tax bracket
    • 25% on Depreciation Recapture
    • 28% on Collectibles (art, gold, etc.)
    • 28% on qualified small business stock after exclusion
  • Capital Loss are deductible in a year up to $3,000 after the netting process is completed. Any loss in excess of $3,000 can be carried over to future years.


College Savings Tools: Coverdell and 529 Plans


Over the past 30 years the cost of attending college has increased faster than the pace of inflation in the United States. Data suggests that the rate tuition has increased is close to 8% per year over that period of time. A child born today that would like to attend a private school that cost $30,000 a year will see that cost rise to over $119,000 just for the first year.

Financing for a college education typically comes from current income of parents, relatives and the student. Student loans, pre-paid tuition programs, grants and scholarships are available as well as parent's and relative's savings. Two commonly used savings and investing vehicles for college expenses are Coverdell Education Savings Acocunts and 529 Plans.


  • Coverdell Education Savings Accounts were created by congress in 1997 and were called Education IRAs. These plans have a $2,000 annual account contribution limit per beneficiary which is subject to modified adjusted gross income limits. Money in the accounts grows income tax free and withdrawals made for qualified education expenses are not taxable. Coverdell accounts can be used for elementary, secondary, college and special needs student expenses. Money in these accounts must be used by the time the beneficiary reaches age 30.  Contributions phase out for a single parent with adjusted gross income of $110,000 and $220,000 for parents filing jointly.


  • 529 Plans have become increasingly more popular as the vehicle of choice for education savings planning. Section 529 Plans are education savings plans operated by a state which offer tax-deferred savings on money in the account as well as tax free withdrawals for qualified higher education expenses for the account beneficiary. Contributions are not deductible. The account owner controls the distribution of the funds in this account. These accounts allow for substantially larger savings limits (more that $300,000 in some states) and contributions are not subject to adjusted gross income levels. Contributions need not come from the same state the plan is sponsored by. Some states allow for  in state tax deductions if you use the plan from the state in which you reside. If the primary beneficiary decides not to go to college the beneficiary can be changed tax-free. The law also provides for rollovers from one plan to another should the owners decide that their current plan is no longer for them. 529 Plans have added estate planning benefits. Subject to the gift tax limits each year a person (typically a parent or grandparent) can gift the beneficiary the maximum gift amount, currently $14,000. A married couple (parents or grandparents) may gift up to $28,000 for the year based on gifting $14,000 per spouse. Additionally these plans allow for the 5-year accelerated gift option allowing for greater lump sum contributions of 5 years of gifting per individual which can be of great benefit for estate planning as these assets are considered to be held outside of the contributors estate. There are no limits on the number of plans you can set up and you can name anyone as a beneficiary. Keep in mind that distributions that do not pay for qualified higher education expenses will likely be taxable as ordinary income and maybe subject to a 10% additional tax.


Why We Save For Retirement

Three distinct reasons we save for retirement are:

  1. We cannot borrow money to retire on like we can to buy a home.
  2. Social Security typically is not enough to cover our retirement income needs.
  3. Inflation makes the goods and services we need more expensive over time reducing the buying power of our money.

Inflation may be the most important aspect of retirement to plan for. The reason is that inflation historically has run between 2-4% and that can have a huge impact on your retirement spending needs. Past data shows that the effect of inflation will cause goods and services to double in price every 15-20 years. 

This means that you must plan on saving twice as much money than someone retiring today if you are retiring in 15 to 20 years from now to be able to purchase the same amount of goods and services as today's retiree. 

Social Security Planning





3 Primary

  • Safety: The safety of an investment is the investments ability to maintain its principal value (initial investment amount) before it provides either income or appreciation. Investments that exhibit small price fluctuations are perceived as safer, however the tradeoff is that the returns from the investment (income, capital appreciation or both) are generally lower.
  • Income: The ability of an invested amount (principal) to generate a stream of cash flow typically in the form of periodic interest or dividend payments. The higher the percentage income generated on the principal amount the riskier the investment tends to be.
  • Capital Appreciation: The ability of an investment to grow in value over time. Investments that tend to deliver higher rates of capital appreciation tend to be more risky and rank lower on the measure of investment safety.

2 Secondary

  • Tax Efficiency: is an essential part of investment success. Taxes can significantly lower the actual amount of the return an investor keeps. Generally investments that rely on income generation as a means of providing returns are less tax efficient than those investments that provide capital appreciation. Note investments held for one year or less will incur tax treatment at the taxpayer’s marginal income tax rate.
  • Liquidity: often also referred to as marketability, is the ability to turn an investment (asset) into cash quickly. Investments in most company stocks that trade on the national exchanges have a high degree of liquidity. Real Estate on the other hand is not readily liquid and takes a longer period of time to convert to cash.


Common Mortgage Types and Description


Mortgage Types

Source: College For Financial Planning

Net-Investment Assets to Net-Worth Ratio

This ratio compares the value of investment assets (excluding equity in a home) with net worth.

  • An individual ratio should be at least 50% and the percentage should get higher as retirement approaches.
  • Younger individuals will likely have ratios of 20% or less but they have time to build it up.
  • A family with a ratio of only 18% indicates that they are not progressing well in their goal of accumulating capital.


Net-Investment Assets to Net-Worth Ratio = Net Investment Assets / Net-Worth


2 Personal Debt to Income Ratios to Know


Front-End Ratio

Indicates the percentage of income that goes toward housing costs, which for homeowners includes PITI (principal, interest, taxes and insurance premiums). Homeowners Association dues would be included in this ratio as well. Housing shouldn't exceed 28% of gross monthly income.

Back-End Ratio

Indicates the percentage of income that goes toward paying all recurring debt, including those covered by the Front-End Ratio, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments and legal judgements. Maximum for this ratio should be 36%.

Front-End Back-End Ratios