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What to Know About Estate Planning When There’s an Addict in Your Family

November 20, 2020

Filed under: Estate Planning — Laura Pennington @ 4:40 pm

Having an addict in your family can be a very difficult situation and this can prompt numerous concerns around the process of estate planning and naming someone as a beneficiary who might not be in a good position to receive or use funds. Creating a written revocable living trust, naming the person in question as a beneficiary can be one way to accomplish your estate planning goals and still protect that person.

You can require, for example, that the trustee make any necessity related payments directly to the provider rather than cash being given to the beneficiary. For example, this might include a mortgage company or a landlord or a health insurance company. You can set aside specific standards for the trustee of the account regarding disbursements.

Some of the most common categories that you can authorize for the trustee include maintenance, education, health and support. This leaves enough room for the trustee to make some discretion but can also require some certain level of standard of living or other needs.

Include a provision that will name the entity or person who will be eligible to receive any funds remaining in the trust if the family member in question were to pass away. These are complicated and important issues to consider from an estate planning perspective. These should always be discussed with a trusted and knowledgeable estate planning lawyer.       

Should You Convert Retirement Accounts for Tax Planning Purposes?

November 18, 2020

Filed under: Estate Planning — Laura Pennington @ 12:23 pm

Do you have a goal of keeping current family money in the family when you pass away? There are several different steps to accomplish in this, each of which can be discussed with an estate planning attorney. 

A person who has a current 401(k) or IRA account could accidentally leave behind not just the assets inside the account but a significant tax bill. There’s an income tax liability, for example, that comes with children inheriting that IRA.

This is because regular income tax has to be paid on distributions from all traditional retirement accounts in the United States. In the past, your heirs had the opportunity to stretch distributions received from this fund over the course of several years to reduce their overall tax burden.

However, the account now must be liquidated within ten years after the death of the primary owner of the account. You might need to think about whether or not converting traditional accounts to Roth accounts, which have tax free distributions, makes the most sense for your family.

For more information about this and to decide what other assets need to be involved in your comprehensive estate plan, it is best to sit down with an estate planning attorney and to create a comprehensive inventory of all of the assets and debt associated with your name. This can help you begin to answer some of the most important and difficult questions around the estate planning process.      

Untangling Intangibles

October 16, 2020

Filed under: Estate Planning — Raymund Rasco @ 3:28 pm

Many companies use intangible assets such as patents, licenses, computer software, branding, and reputation to earn revenues. These intangible assets have always been part of the economic landscape. We study the impact of intangibles on our ability to identify differences in expected stock returns and find no tangible performance benefit from adjusting for intangibles.

It is important to begin by distinguishing between two types of intangible assets. Under US generally accepted accounting principles (GAAP), externally acquired intangibles are reported on the balance sheet. They currently represent about a quarter of the reported value of assets for the average US company. These assets are accounted for when computing book equity. Internally developed intangibles, on the other hand, are generally not capitalized on the balance sheet. Instead, they are expensed and thus reflected on the income statement. The difference in accounting treatment is primarily due to the higher uncertainty around the potential of internally developed intangibles to provide future benefits and the difficulty to identify and objectively measure such benefits.1 After all, internally developed intangibles do not go through a market assessment, while externally acquired intangibles get evaluated in the competitive market for mergers and acquisitions, and at that time, they might already be generating tangible benefits for the company that developed them. For example, Disney bought the Star Wars franchise, an externally acquired intangible, in 2012, many years after the franchise began generating economic benefits for Lucasfilm.

Some argue that to more effectively infer differences in expected returns across firms sourcing most of their intangibles externally and firms sourcing them mostly internally, we should capitalize internally developed intangibles. Several academic studies do that by accumulating the historical spending on research and development (to capture the development of “knowledge capital”) and selling, general, and administrative (SG&A) expenses (to capture the development of “organizational capital”). In the present study, we follow the approach suggested by Peters and Taylor (2017)2 and find that while intangible assets comprise more of companies’ assets over time, this stems mainly from growth in externally acquired intangibles. Estimated internally developed intangibles have not meaningfully increased as a proportion of total assets (see Exhibit 1).

Moreover, the estimation approach for internally developed intangibles has several important caveats in addition to the lack of market valuations. First, the estimation of internally developed intangibles assumes that the development of intangible capital can be captured fully through spending reported on the income statement. Second, the approach is critically dependent upon the availability of reliable and comprehensive R&D and SG&A data. However, we observe R&D data for about half of the US market even today. As a result, the estimated knowledge capital is zero for about half of the US market. Thus, we would adjust the value and profitability metrics of half of the market for knowledge capital and leave the rest unadjusted, potentially making firms in the adjusted and unadjusted groups less comparable, not more, after the adjustments. Further, while SG&A data are available for most US companies since the 1960s, the breakdown of operating expenses into cost of goods sold and SG&A varies often across companies and data sources, which might add noise to the estimation of organizational capital. The estimation approach can also produce noisy results because it applies constant amortization rates through time and does not allow for impairments. As a result, a company can be approaching bankruptcy and still appear to have billions of dollars’ worth of internally developed intangibles.

Because of all those different sources of noise, capitalizing estimated internally developed intangibles might not be helpful in identifying differences in expected stock returns. Our empirical research lends support to this expectation. Estimated internally developed intangibles contain little additional information about future firm cash flows beyond what is contained in current firm cash flows. Moreover, we do not find compelling evidence that capitalizing estimated internally developed intangibles yields consistently higher value and profitability premiums.

Given the large challenges with estimating internally developed intangibles, an alternative approach to infer more effectively differences in expected returns among
firms with different sources of intangibles might be to strip out externally acquired intangibles from the balance sheet. Our empirical analysis shows no compelling performance benefit of excluding externally acquired intangibles from fundamentals. Historically, the exclusion of externally acquired intangibles would not have generated higher value or profitability premiums. Therefore, we believe investors are better off continuing to incorporate externally acquired intangibles reported on the balance sheet and not adding noisy estimates of internally developed intangibles to value and profitability metrics.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Investing in FAANG Stocks: Should You Expect Unexpected Returns?

October 7, 2020

Filed under: Estate Planning — Raymund Rasco @ 3:58 pm

Investment returns have two parts: the expected return and the unexpected return. The expected return is the best guess of what will happen based on all the information currently available. The unexpected return is the surprise, the difference between what does happen and what was expected. Investors should base their portfolio decisions on expected future returns, not recent realized returns, and the two can differ by a lot.

Look at the returns on the so-called FAANG stocks–Facebook, Amazon, Apple, Netflix, and Google’s parent company, Alphabet. Over the 10 years from September 2010 to August 2020, a portfolio of the five stocks held in proportion to their market caps would have delivered an average annual return of 34.25% per year. That means on average, the value of the portfolio doubled about every 2.5 years.

Given their great returns over the last 10 years, what is our best guess of how the FAANG stocks will do over the next decade? Should we expect an average annual return of almost 35% again? Absolutely not. Who wouldn’t buy these stocks if their expected returns were 35%? But buyers need sellers. The demand driven by such high expected returns would simply push prices up and drive expected returns down to a more
reasonable level. For the same reason, I’m confident that if we could go back to August 2010, we would find few investors predicting the FAANG stocks would do as well as they did from 2010 to 2020.

So what does explain the FAANG stocks’ high realized returns? Their unexpected returns. Things turned out much better for them than investors expected. The companies’ cash flows over the last 10 years were much higher than investors expected 10 years ago, and their prospects looking forward from today are almost certainly better than investors expected they would be 10 years ago.

All this unexpected good news produced high unexpected stock returns over the last decade. It would be wrong, however, to expect high unexpected returns to persist. After all, it doesn’t make sense to count on good luck. The expected value of the unexpected returns must be zero.

In short, the past decade of extraordinary realized returns tells us little about the FAANG stocks’ future expected returns. And unfortunately, this is a general result. For most investments and most investment horizons—a month, a year, five years, even ten years—the realized return is driven far more by the unexpected return than the expected return.

–  Kenneth French, PhD
Director and Consultant

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Checking Out of a Relationship or Home? Time for a Checkup!

October 6, 2020

Filed under: Estate Planning — Laura Pennington @ 11:32 am

In normal times and especially in a pandemic, many people use natural pause points to take stock of their lives and determine their next moves. For you, this might look like moving out of a home that was big enough to raise your kids in but too big to justify alone or with a spouse. It could include leaving a first or second marriage or trying to relocate to a new state where the conditions are more favorable to you financially.

No matter what moves you’re making in your life or you have on your horizon in the near future, it’s time for a checkup on your financial and estate plans. Your current plans might work for the conditions you’re in now, but making big changes means you need a step back to determine how your new life fits into the fold.

From thinking about your long term care plan to physically updating your will or beneficiary forms, there are a few tasks on this to-do list to consider when you’re “checking out” of your current conditions. It’s easy to miss some of these details, but they are important aspects of your life and plan. It’s best to partner with a dedicated estate planning lawyer to work through all the details and get the confidence that comes from having a comprehensive estate plan in place.

Are you concerned about how you move forward with your life in a way that protects your personal interests and your loved ones? You’re not alone. Estate planning lawyers in NJ can assist you with reviewing your current plan and making the necessary updates so that you have a future that’s bright for yourself and enables your loved ones to have an easier time moving your estate through the administration phase when it comes time to do that.

How Much Impact Does the President Have on Stocks?

October 2, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:21 pm

The anticipation building up to elections often brings with it questions about how financial markets will respond. But the outcome of an election is only one of many inputs to the market. Our interactive exhibit examines market and economic data for nearly 100 years of US presidential terms and shows a consistent upward march for US equities regardless of the administration in place. This is an important lesson on the benefits of a long-term investment approach.

NOTES AND DATA SOURCES

• This material is in relation to the US market and contains analysis specific to the US.

• In US dollars. Stock returns represented by Fama/French Total US Market Research Index, provided by Ken French and available at http://mba.tuck.dartmouth.edu/ pages/
faculty/ken.french/data_library.html. This value-weighed US market index is constructed every month, using all issues listed on the NYSE, AMEX, or Nasdaq with available
outstanding shares and valid prices for that month and the month before. Exclusions: American depositary receipts. Sources: CRSP for value-weighted US market return.
Rebalancing: Monthly. Dividends: Reinvested in the paying company until the portfolio is rebalanced.

• Growth of wealth shows the growth of a hypothetical investment of $100 in the securities in the Fama/French US Total Market Research Index. Growth of wealth for the full
sample from March 4, 1929, through June 30, 2020. Growth of wealth for each presidential term starts on the election day of each president up to but not including the
election day of a successor. For presidents who are not initially elected, the growth of wealth period starts from the day of inauguration up to but not including the successor’s
election day.

• Federal surplus or deficit as a percentage of gross domestic product, inflation, and unemployment data from Federal Reserve Bank of St. Louis (FRED). GDP Growth is annual
real GDP Growth, using constant 2012 dollars, as provided by the US Bureau of Economic Analysis. Unemployment data not reported prior to April 1929. Federal surplus or
deficit as a percentage of gross domestic product data is cumulative.

• US Government Presidential and Congressional data obtained from the History, Art & Archives of the United States House of Representatives. US Senate data is from the
Art & History records of the United States Senate.

• For Herbert Hoover, the federal budget is calculated from 1929 to 1932. Annual real GDP growth is calculated from 1930 to 1932; GDP data not available prior to 1930.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

What History Tells Us About US Presidential Elections and the Market

October 1, 2020

Filed under: Estate Planning — Raymund Rasco @ 3:57 pm

It’s natural for investors to look for a connection between who
wins the White House and which way stocks will go. But as
nearly a century of returns shows, stocks have trended upward
across administrations from both parties.

• Shareholders are investing in companies, not a political
party. And companies focus on serving their customers
and growing their businesses, regardless of who is in the
White House.

• US presidents may have an impact on market returns,
but so do hundreds, if not thousands, of other factors—the
actions of foreign leaders, a global pandemic, interest rate
changes, rising and falling oil prices, and technological
advances, just to name a few.

Stocks have rewarded disciplined investors for decades,
through Democratic and Republican presidencies.
It’s an important lesson on the benefits of a long-term
investment approach.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Why Investors Might Think Twice About Chasing the Biggest Stocks

September 23, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:31 pm

Average Annualized Outperformance of Companies Before and After The First Year They Became One Of The 10 Largest In The US
Compared to Fama/French Total US Market Research Index ,1927–2019

As companies grow to become some of the largest firms trading on
the US stock market, the returns that push them there can be impressive.
But not long after joining the Top 10 largest by market cap, these
stocks, on average, lagged the market.

• From 1927 to 2019, the average annualized return for these
stocks over the three years prior to joining the Top 10 was nearly
25% higher than the market. In the three years after, the edge was
less than 1%.

• Five years after joining the Top 10, these stocks were, on average,
underperforming the market—a stark turnaround from their earlier
advantage. The gap was even wider 10 years out.

• Intel is an illustrative example. The technology giant posted average
annualized excess returns of 29% in the 10 years before the year
it ascended to the Top 10 but, in the next decade, underperformed
the broad market by nearly 6% per year. Similarly, the annualized
excess return of Google five years before it hit the Top 10 droppedby about half in the five years after it joined the list.

Expectations about a firm’s prospects are reflected in its
current stock price. Positive news might lead to additional
price appreciation, but those unexpected changes are
not predictable.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Can a Person Still Sign a Power of Attorney If They are Legally Incompetent?

September 17, 2020

Filed under: Estate Planning — Laura Pennington @ 4:45 pm

A person cannot sign any legal document including one that would appoint a power of attorney if they are incapacitated. This is one of the most common misconceptions about the power of attorney document. Only a mentally competent individual is able to appoint a power of attorney for themselves.

Once a person lacks legal capacity such as that they have experienced significant cognitive decline as a result of dementia or another circumstance, they are no longer eligible to execute a power of attorney document that would be classified as legally valid. These documents need to be created well in advance of a person being classified as incompetent.

It can be helpful for someone who is of older age and wishes to prevent problems surrounding their POA document to schedule a consultation with an estate planning attorney to walk through the process of creating a POA and deciding whether it should be general or specific in nature. It is also helpful for a person who is currently legally competent and wishes to document this to have a physician prepared to write a letter about the person’s state of mind at the time that the power of attorney is executed.

This can be very helpful in the event that another person is challenging the legality of the power of attorney or any other challenges arise in the agent’s attempt to carry out their duties. Schedule a consultation with an estate planning attorney in your area to learn more.   Since you need to sign a POA before you’re incapacitated, now is the right to make this decision to install the right person in this all-important role.    

What Happens When a House That Is Split Multiple Ways Is Rented, Passed or Sold at Death?

September 16, 2020

Filed under: Estate Planning — Laura Pennington @ 12:42 pm

If you have a loved one who is elderly and owns a house that no longer has a mortgage on it, it is important to look carefully at the deed to determine who has the rights to this home.

If, for example, an elderly loved one took money to pay taxes on the home from somebody else and added those parties to the deed, the proceeds should be divided equally among the parties who contributed towards the taxes as well as the homeowner. A key question is whether or not the people who have been added to the deed are tenants in common or own the property as joint tenants.

Upon the loved one’s death, the deceased individual’s interest will automatically disappear if the property was owned as joint tenants. If it was owned as tenants in common, the one-third interest for the primary owner will pass to the estate and will be distributed according to the will.

Real estate is one of the most challenging kinds of assets to move through probate. It’s imperative that you discuss your options directly with an attorney who is familiar with how to include these in your estate plan so that you know your next steps.

There are many complex issues involved in determining whether or not someone has an interest and a proper plan for what happens to their real estate property after they pass away. Schedule a consultation with a trusted estate planning lawyer to learn more. Our NJ estate planning law office can help with your real estate planning for probate and beyond.

 

What’s Included in an Elder Law Agreement?

September 15, 2020

Filed under: Estate Planning — Laura Pennington @ 2:03 pm

It is very common to sign an agreement or a contract with an attorney that you intend to work with and an elder law attorney is no different. Based on your initial consultation with this elder law attorney you will have a better sense of the services that would be provided and the process with which you expect to work with this person.

Each law firm’s engagement agreement is different and it’s a good idea to read through the specifics of your elder law agreement so that you understand the exact terms of the working arrangement. This includes planning options discussed and the next steps for moving forward.

This can also involve a fee quote for implementing the plan and the terms of payment arrangement, such as asking for half of the fee at the time this person is hired and the balance when the client returns. It can be very difficult to determine the scope of work for all elder law work agreements. This means that your elder law attorney might instead choose to charge by the hour and request a retainer. This can be different in litigation and probate matters as well, so you’ll want to be clear about the exact type of services for which you intend to retain an experienced attorney.

A knowledgeable lawyer will be able to use the information gleaned in the initial consultation to draft up a work agreement. You also have the right to read through this entire agreement and determine whether or not to sign it. Make sure that you ask all of your questions upfront before signing the agreement because it will be assumed that you have read this document and have made your decision to move forward based on it.

Market Returns Through a Century of Recessions

September 10, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:50 pm

What does a century of economic cycles teach investors about investing? Our interactive exhibit examines how stocks have behaved during US economic downturns. Markets around the world have often rewarded investors even when economic activity has slowed. This is an important lesson on the forward-looking nature of markets, highlighting how current market prices reflect market participants’ collective expectations for the future.

1926—1927
A few years before the Depression, the US experienced a mild, yearlong recession accompanied by a minor bout of deflation. The stock market slipped 2.9% in the first month of the downturn.

Great Depression
The Depression decimated the US economy—unemployment climbed to 25.2%, and industrial production plunged 48.6%. Before the collapse ended, stocks collectively lost 83.6% in a 33-month market downturn.

1937—1938
A sharp, 13-month recession—marked by high unemployment and a big dip in industrial production—occurred in the midst of the nation’s recovery from the Depression. Stock market investors suffered a 49.2% loss.

World War II Recession
Industrial production plunged 26% during the eight-month recession near the end of World War II. But the stock market dipped only 3.9% early in the recession before rebounding.

1948—1949
A modest stock market slide (—11.0%) began five months before this relatively small economic

1953—1954
The Korean Armistice was signed in the summer of 1953. A stock market slump that had begun in March was over by August, but the recession continued until early 1954.

1957—1958
A huge drop in industrial production (–11.3%) and a contraction in GDP (–3%) interrupted the 1950s boom. Stocks retrenched 14.9% in the midst of a decade-long climb.

1960—1961
This four-month pause followed the previous decade’s bull market. In the election year of 1960, unemployment rose to 6.6%, and the stock market dropped 7.9%.

1969—1970
High inflation and a big jump in unemployment punctuated the 11-month recession that began in December 1969. A volatile

Oil Crisis
Inflation hit double digits during the 1973–75 recession. The stock market lost nearly half its value in the first 11 months of the 16-month economic downturn.

1980
A 12% stock market decline occurred early in 1980’s six-month recession, during which unemployment hit 7.6%. But the market finished the year with an impressive gain of 33.4%.

1981–1982
Historically high interest rates preceded a harsh recession that dragged on for 16 months and saw unemployment peak at 10.4%. The stock market experienced a 15.9% slide before beginning a long rally.

Gulf War
Stocks reacted negatively to the onset of the Gulf War in August 1990, dropping 17% over five months as the price of oil doubled. When the market regained its footing, stocks were set to start a nine-year bull market that peaked in the dot-com era.

Tech Boom and Bust
Many investors may not realize that the stock market had started a deep decline before the relatively mild

Global Financial Crisis
During the Global Financial Crisis, the worst of the 50.4% stock market dive happened in the latter half of an 18-month recession that saw unemployment hit 9.4% and industrial production tumble 17%. But after falling for 16 months, the market started a nearly 11-year bull run.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Ins and Outs of Emerging Markets Investing: Market Behavior and Evolution

September 7, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:21 pm

Emerging markets are an important part of a well-diversified global equity portfolio. However, recent history reminds us that they can be volatile and can perform differently than developed markets. In this article, we provide a longer historical perspective on the performance of emerging markets and the countries that constitute them. We also describe the emerging markets opportunity set and how it has evolved in recent years.

RECENT PERFORMANCE IN PERSPECTIVE

In recent years, the returns of emerging markets have lagged behind those of developed markets. As shown in Exhibit 1, over the past 10 years (2010–2019) the MSCI Emerging Markets Index (net div.) had an annualized compound return of 3.7%, compared to 5.3% for the MSCI World ex USA Index (net div.) and 13.6% for the S&P 500 Index. While recent returns have been disappointing, it is not uncommon to see extended periods when emerging markets perform differently than developed markets. For example, just looking back to the prior decade (2000–2009), emerging markets strongly outperformed developed markets, with the MSCI Emerging Markets Index (net div.) posting an annualized compound return of 9.8%, compared to 1.6% for the MSCI World ex USA Index and –0.95% for the S&P 500 Index.

The magnitude of the return differences from year to year can be large. For example, relative to the US, the biggest underperformance in the past 10 years was in 2013, when emerging markets underperformed by over 34 percentage points. Exhibit 2 helps to put this difference into historical context: between 1988 and 2019, emerging markets outperformed US stocks by 34 percentage points or more per year four times (1993, 1999, 2007, and 2009) and underperformed US stocks by that same magnitude four times (1995, 1997, 1998, and 2013).

Over the entire period from 1988 to 2019, investors with a consistent allocation to emerging markets were rewarded. The MSCI Emerging Markets Index (gross div.) had an
annualized return of 10.7% over this period. That exceeded the 5.9% annualized return for the MSCI World ex USA Index (gross div.) and was similar to the 10.8% average annualized return for the S&P 500, even when including the recent decade of strong performance of the US equity market. However, emerging markets returns were also more volatile. Looking at the same indices, the annualized standard deviation was higher for emerging markets: 22.4% vs. 14.1% for the US and 16.4% for developed markets outside the US. This higher volatility, as well as the potentially sizable performance deviation from developed markets, underscores the importance of patience, discipline, and an appropriate allocation that investors can stick with when considering investing in emerging markets.

A CLOSER LOOK AT EMERGING MARKETS COUNTRY PERFORMANCE

Diversification across emerging markets countries can improve the reliability of investment outcomes, as dispersion among country returns can be wide. Exhibit 3 displays individual emerging markets country returns by calendar year for the past two decades. Each country is represented by a different color, and countries are ranked each year from the highest to lowest performer. In the 20 years ended December 2019, no country had the worst-performing market for more than two consecutive years, and no country had the best-performing market in consecutive years. The illustration shows that country performance is volatile and that countries that rank low in one year may rank among the highest performers in the next year.

Focusing on the countries at the top and bottom of the columns for each year reveals substantial differences in returns between the best-performing and worst-performing market. Exhibit 4 shows that, over the past two decades, the annual return difference between the best- and worst-performing emerging markets has ranged from 39 percentage points in 2013 to 159 percentage points in 2005. On average, that difference has been approximately 80 percentage points per year. Perhaps somewhat counterintuitively, the extreme performers were not necessarily dominated by a handful of countries or by the smaller countries. In fact, 13 different countries were the worst annual performers, and similarly, 13 different countries were the best annual performers. These data illustrate the extreme outcomes that investors may be exposed to by concentrating in a few countries. There is no compelling evidence that investors can reliably add value through dynamic country allocation.1 By holding a broadly diversified portfolio, investors are instead well positioned to capture returns wherever they occur.

THE EVOLVING EMERGING MARKETS OPPORTUNITY SET

As a group, emerging markets represent a meaningful opportunity set for investors. The size and composition of the investible universe of emerging markets have steadily evolved since the late 1980s, when most comprehensive data sets and benchmarks for emerging markets begin. Over the years, major geopolitical, economic, and demographic changes have contributed to shifting weights for individual countries and companies within emerging markets, but in aggregate they have continued to grow. As of the end of 2019, the total free-float adjusted market capitalization of Dimensional’s emerging markets universe was $7.8 trillion and included 24 countries and over 7,000 securities. As shown in Panel A of Exhibit 5, emerging markets represented 12.5% of global markets’ free-float adjusted market capitalization. Measured by gross domestic product (GDP), emerging markets’ share increases to 38.0% (Panel B), reflecting the fact that emerging markets typically have smaller market capitalizations compared to GDP than most developed markets. Regardless of the metric, emerging markets represent a significant component of global markets.

Panel A of Exhibit 6 examines the country composition of Dimensional’s emerging markets universe. The top five countries in terms of market capitalization—Brazil, China, India, Korea, and Taiwan—represented 73.2% at the end of 2019, slightly higher than at the beginning of the decade, when these same five countries represented 68.8% of the universe. A more significant development over the past decade has been the rise in the weight of China, from 17.2% of the universe at the end of 2009 to 31.4% at the end of 2019. This increase has been driven primarily by new equity issuance and new avenues for foreign investors to gain exposure to Chinese companies, including securities listed on the local Shanghai and Shenzhen stock exchanges through Hong Kong stock connect programs.

In addition to changes in size and country composition, emerging markets have undergone important improvements in their market mechanisms and microstructures over the past decade. Generally, emerging markets have become more open to foreign investors with fewer constraints on capital mobility. Evidence of these developments includes fewer instances of market closings, capital lockups, and trading suspensions of individual stocks in many markets. Finally, emerging markets have broadly adopted international accounting and reporting practices over the last decade. Our analysis suggests more than 90% of the firms in most emerging markets now report their annual financial statements according to International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Practices (GAAP). In countries like China, India, and
Taiwan, the national standards have substantially converged with IFRS. This has helped improve the reliability and transparency of financial data in emerging markets.

SUMMARY

In sum, emerging markets represent a meaningful opportunity set within global markets. They continue to evolve in their structures, market mechanisms, and accessibility.
Investors in emerging markets can benefit from a long-term perspective, expertise and flexibility in navigating these changing markets, and an approach that emphasizes diversification and discipline.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

When Something Just “Doesn’t Feel Right?”

September 3, 2020

Filed under: Estate Planning — Raymund Rasco @ 3:26 pm

“I don’t know…something just doesn’t feel right,” you mumble through your mask to your primary care doctor while sitting on the examination table under a flickering fluorescent light in a room decorated with anatomical charts and hand-sanitizer dispensers. After listening to your heart and your lungs, the doctor diagnoses your feelings of worry as a mild condition that is easily treatable but could become serious if a proper treatment regimen isn’t followed. The doctor gives two treatment plans: one coming from the New England Journal of Medicine and the other from a health magazine that can be purchased at your local convenience store. Which plan do you choose?

The health magazines are filled with tips and tricks, such as how to burn body fat, jump start the body’s metabolic rate and build immune system strength. And they might even work sometimes. If you want to choose the treatment plan with the highest odds of success, it might give you more confidence to know that the medical journal, and its recommendations, are based on decades of data collected from research studies performed by medical experts and peer-reviewed by the medical community.

We face the same decision when it comes to investing. Numerous publications tout the latest investment trends and implore their readers to jump on the bandwagon or miss out on the impending financial windfall. And to their credit—sometimes they work. But just like our physical health, we can place more confidence in an evidence-based approach to support our long-term investment plans and ultimately our financial well-being.

Evidence-based investing and evidence-based planning, the foundation of your financial life plan and our philosophy, is an approach guided by thoroughly vetted, peer-reviewed research and carried out by industry thought-leaders, academicians, and practitioners that is tested against decades of empirical data. We used this research to design your portfolio so that you can focus on today and know that your portfolio will be there to support your lifestyle in the future, regardless of what the pundits claim are the latest investment trends in the markets today.

The next time you find yourself questioning your financial well-being or if your portfolio “just doesn’t feel right,” look at what the evidence says. Are you giving yourself the best odds of long-term success?

When you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are ready to help.

Election Year Politics and Stock Market Forecasts

August 26, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:19 pm

A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points:

1. Markets have already priced in the possibility of a Biden presidency.
2. Two-step forecasting is difficult.
3. Your political beliefs can lead to investing mistakes.

Markets Have Already Priced in the Possibility of a Biden Presidency

Right now, if you look at the odds on betting markets, the consensus estimate is that Biden has about a 55% chance of winning the election, while Trump has about a 40% chance. The remaining 5% is allocated to various candidates and non-candidates. What will wind up moving financial markets is if conditions change such that the odds of Biden becoming president significantly increase or decrease. President Trump was a heavy underdog in 2016; betting markets gave him just a 20% chance of winning the day before the election. And yet, even after the surprise outcome, market moves were relatively muted the day after the election (the S&P 500 was up 1.1% that day). It should be noted that some forecasters were predicting a sharp decline if Trump won. Dallas Mavericks owner and TV personality
Mark Cuban said “there is a really good chance we could see a huge, huge correction” in the event of a Trump victory.

Two-Step Forecasting is Difficult

Two-step forecasting is when someone says, “I forecast X, and as a result Y will happen.” Let’s say you’re 60% sure Biden is going to win (which is roughly in line with the consensus estimate). Let’s also assume that you’re 60% sure a Biden victory means stocks will decline in value. Then assume that if you’re wrong and Trump wins (a 40%chance) there’s another 30% possibility that stocks will decline for other reasons.

Keep in mind that going back to 1926, the S&P 500 has had negative returns in 27% of calendar years, so these assumptions are essentially saying that a Biden presidency is more than twice as likely to cause a stock market decline as has happened historically, while a Trump presidency means that the chances are roughly the same as history.

Using the above assumptions, the math works out on this so that there is a 36% probability (60% x 60%) that you’re right about Biden winning and then also right about the market declining as a result, plus another 12% probability (40% x 30%) that you’re wrong about Biden winning but accidentally right about the market decline anyway. This totals out to a 48% chance of getting your two-step forecast correct, or essentially a coin-flip.

Of course, so far I haven’t even mentioned how difficult it is to get the first prediction correct, much less getting both predictions right. Philip Tetlock, who teaches psychology, business and political science at the University of California, Berkeley is the author of “Expert Political Judgment: How Good Is it? How Can We Know?” The book, which was published in 2006, discusses the findings of his 20-year study, the first scientific study on the ability of experts from various fields to predict the future. Tetlock found that so-called experts who make predictions their business are no better than random luck. RBC head of US equity strategy Lori Calvasina should have learned this lesson in October 2019, when a Bloomberg Businessweek article shared her analysis of the Democratic presidential primary: “If politicians were stocks, she would advise shorting Joe Biden. Elizabeth Warren, on the other hand, looks like a buy.”

Your Political Views Can Lead to Investing Mistakes

There’s actually evidence that election results have the power to affect how investors handle their portfolios. The 2010 study “Political Climate, Optimism, and Investment Decisions” examined the link between investors political affiliations and their investment choices. Simply put, when your political party is in power, you feel much more confident about the economy and markets, and vice versa. Being aware of your biases can help you make better investment decisions. Trying to time the market due to concerns about the upcoming election is not likely to be a winning strategy. The reason is that you have to be right not once, but twice. In order for market timing to work, you need to know when to get out and when to get back in. Suppose you get out now. Do you get back in if Trump wins? Or if, Biden wins, do you stay out of the market for four full years waiting for the 2024 election? The bottom line is that you shouldn’t let the latest economic or political news cause you to abandon your well-developed plan.

Sources: © 2020 Buckingham Wealth Partners. Buckingham Strategic Wealth, LLC, & Buckingham Strategic Partners, LLC (Collectively, Buckingham Wealth Partners) IRN-20-748

Tracking Your Digital Assets with Your Estate Plan

August 17, 2020

Filed under: Estate Planning — Laura Pennington @ 4:09 pm

Most of the material you probably own that is an asset inside your estate plan is tracked in the form of paper. You might have kept it in a bookcase, in a filing cabinet or a safety deposit box. But what happens when more and more of your assets are digital? Increasingly, our most important things are actually on the cloud or on websites owned by other people.

It’s very difficult to avoid accumulating digital assets and sitting down and trying to list them all might open your eyes to some of the issues associated with this that could make it hard for you to do so. You’ll begin to see the scope of the challenge if you could complete that exercise of trying to list your different digital accounts.

Right now, your electronic communications and digital assets are entrusted to custodians in the form of those companies that store all of these assets like your photos on their servers. These are not governed by property law which means that the terms of service agreement established by the company is the underlying thing you will want to look at to determine what happens if the original owner is no longer able to access these details.

You’ll need to discuss the specifics with your estate planning lawyer if you have concerns about the process and how best to proceed. Scheduling a consultation with a trusted estate planning lawyer can open your eyes and help you put in place the necessary structures, tactics, and strategies to protect your interests.       

Should I Transfer My New Jersey Home to My Child Now?

July 29, 2020

Filed under: Estate Planning — Laura Pennington @ 1:30 pm

If you own an entire property in New Jersey or a portion of a property in New Jersey but live outside the state, there are several important things you need to recognize about the process of passing this on to someone else. First of all, New Jersey does not have a state gift tax.

At the federal level in 2020, however, there is an annual federal gift tax exclusion of $15,000, meaning that any gifts extending beyond that amount require you to file a gift tax return for the portion above $15,000. It’s also important to recognize your overall lifetime estate tax exemption which is $11.58 million for individuals in 2020. No gift tax would be incurred as long as you do not intend to make gifts greater than that amount.

Although it seems like with little tax implications there is good reason to make this gift during the course of your life, the purchaser’s cost will carry over to the recipient of a gift, meaning that your child could inherit the property with a cost basis equal to whatever you paid for that share of the property or the property itself. If the property has increased in value significantly since you purchased it, this means that you could be subjecting your child inadvertently to a large capital gain tax.

Some other states, such as Pennsylvania will have a reciprocal income tax agreement with New Jersey but this does not extend to income that goes beyond compensation. For more information about some of the challenges associated with passing on property, schedule a consultation with a trusted New Jersey lawyer today.

Estate Planning for An Adult with a Disability

July 23, 2020

Filed under: Estate Planning — Laura Pennington @ 2:02 pm

Planning for an estate is important for everyone, but especially if you are the caretaker of an adult with disabilities, it’s important to ensure all the documents are lined up to protect this person. The guidance of guardianship estate planning statutes can enable a court-appointed guardian of a disabled adult to put together estate plans for those adults based on a petition to the court. Across the U.S., there are thirty-two states with provisions on the books that enable estate planning to be formally handled by a guardian on behalf of a disabled party.

While these 32 states do have laws on the books about these issues, those statutes usually fall into two general categories. For the first set of states, statutes allow guardians to have broad power over estate planning issues on behalf of a disabled adult.This can include carrying out trusts, codicils, and wills. Only a handful of these states, however, allow the guardian to actually make the will on behalf of the disabled party.

The second grouping of states include those that have either left out of the power to make the will in an implied or expressed manner. This means that the ability to make a will is either not mentioned or has been expressly prohibited as something that a guardian can do on behalf of any adult with a disability.

Estate planning is not always a power that an appointed guardian can do for a disabled adult. This includes creating a will but also incorporates other kinds of estate planning powers.

If you are interested in being appointed as a guardian for an adult in your family who lives with disabilities, it’s important to sit down with a trusted estate planning attorney to discuss your options. Knowing exactly what you can and cannot do when appointed in this role will give you some clarity and allow you to accomplish what is needed on behalf of an adult with a disability. Need more help? Our NJ estate planning law office is here to help you.

 

 

Large and In Charge? Giant Firms atop Market Is Nothing New

July 14, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:24 pm

The world is changing, this crisis has cemented the dominance of a handful of very large technology companies (FAANG – Facebook, Amazon, Apple, Netflix, Google). Why shouldn’t investors just focus on them?

Investors may be surprised to learn that it is not unusual for the market to be concentrated in a handful of stocks, but keep in mind that any expectations about the future operational performance of a firm are already reflected in its current price.

Tech standouts are drawing attention for their perceived sway on stocks, but history undercuts that view.

A top-heavy stock market with the largest 10 stocks accounting for over 20% of market capitalization and a marquee technology firm perched at No. 1? This sounds like a description of the current US stock market, dominated by Apple and the other FAANG stocks,1 but it is actually a reference to 1967, when IBM represented a larger portion of the market than Apple at the end of 2019 (5.8% vs. 4.1%).

As we see in Exhibit 1, it is not particularly unusual for the market to be concentrated in a handful of stocks. The combined market capitalization weight of the 10 largest stocks, just over 20% at the end of last year, has been higher in the past.

A breakdown of the largest US stocks by decade in Exhibit 2 shows some companies have stayed on top for a long time. AT&T was among the largest two for six straight decades beginning in 1930. General Motors and General Electric ranked in the top 10 at the start of multiple decades. IBM and Exxon were also mainstays in the second half of the 20th century. Hence, concentration of the stock market in a few large companies such as the FAANG stocks in recent years is not a new normal; it is old normal.

Moreover, while the definition of “high-tech” is constantly evolving, firms dominating the market have often been on the cutting edge of technology. AT&T offered the first mobile telephone service in 1946. General Motors pioneered such innovations as the electric car starter, airbags, and the automatic transmission. General Electric built upon the original Edison light bulb invention, contributing to further breakthroughs in lighting technology, such as the fluorescent bulb, halogen bulb, and the LED. So technological innovation dominating the stock market is not a new normal; it is an old normal too.

Another trend attributed to a new normal is the extraordinary performance of FAANG stocks over the past decade, leading some to wonder if we should expect these stocks to continue such strong performance going forward. Investors should remember that any expectations about the future operational performance of a firm are already reflected in its current price. While positive developments for the company that exceed current expectations may lead to further appreciation of its stock price, those unexpected changes are not predictable.

To this point, charting the performance of stocks following the year they joined the list of the 10 largest firms shows decidedly less stratospheric results. On average, these stocks outperformed the market by an annualized 0.7% in the subsequent three-year period. Over five- and 10-year periods, these stocks underperformed the market on average.

Past performance is no guarantee of future results.

The only constant is change, and the more things change the more they stay the same. This seems an apt description of the dominant stocks atop the market. While the types of businesses most prominent in the market vary through time, the fact that a small subset of companies’ stocks account for an outsized portion of the stock market is not new. And it remains impossible to systematically predict which large companies will outperform the stock market and which will underperform it. This underscores the importance of having a broadly diversified equity portfolio that provides exposure to a vast array of companies and sectors.

Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Original article can be found at https://us.dimensional.com/perspectives/large-and-in-charge-giant-firms-atop-the-market-is-nothing-new

When & How do I Find an Elder Care Planning Attorney?

July 13, 2020

Filed under: Estate Planning — Raymund Rasco @ 3:44 pm

Americans are living longer than ever but that doesn’t always mean a longer quality of life. A proper elder care plan should account for not only having the right people in the right roles in order to make the proper financial & health Care decisions, but also guidance and direction with respect to your wishes should you not be able to speak for yourself.

When should one look for an Elder Care Attorney?

There is not an exact time when one should look for an elder care attorney but I see it most commonly when one is considering retirement, most commonly in the late 50s and onward. The need for elder care planning evolves from a properly structured financial plan & estate plan. Another way to regard it is as “Estate Planning with a very specific purpose.” If estate planning is most often is associated with ‘death planning’, then elder care planning is more ‘life & longevity planning.’

How does one choose an Elder Care Attorney?

The ideal way to choose an elder care attorney is by speaking with him or her.  Referrals can be extremely helpful, as are testimonials.  Credentials, such as Certified Elder Law Attorney and other such designations are helpful – but those are often an indication of standardized exams, experience, an ongoing continuing legal education & a commitment to the practice. Not to diminish those very important aspects – but elder Care planning is a personal endeavor.  Traditionally, Estate Planning and Elder Care planning was done with a cookie cutter-like approach. But it’s important that the attorney who guides you on this level of planning emphasize customized solutions and listens to you. Although your pattern and your facts might be similar to others, every family has unique and deserves to be treated as such.

What should one expect when dealing with an Elder Car Law Firm?

When working with an elder care attorney, you should expect to be heard, and to have conversations. Much like going to a physician who needs to have x-rays, MRIs, lab work, etc prior to guiding you on your health needs, an Elder Care attorney is going to need baseline information with respect to your finances, health, family situation, goals and concerns, among other aspects.  Be prepared to be open and forthcoming. You wouldn’t hesitate to tell your doctor if you are taking medications that may have contraindications & adverse effects – treat elder Care attorney with the same manner if you desire proper, effective advice.

Anything else I should know?

It’s important to know that Elder Care attorneys typically handle only the legal aspect of planning. However your elder care plan needs to be integrated with your financial plan, investment plan, tax planlong-term care plan, and insurance plan. Not all attorneys are going to be equipped to handle all of these services in-house. At Shah Total Planning I handle them in-house because my clients prefer that integrated, one-stop shop. But if you can’t find somebody who does it all in the house, it’s important to find someone who is willing to communicate with your team of professionals.

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