Holding investments for the long term can be less taxing

  • Written by Scott Johnson

Scott-Johnson---HeadAs we get closer to April 15, the tax-filing deadline, you may be wondering about the effects of some of your actions on the amount of taxes you pay. Of course, you don’t have total command of some key tax-related components, such as your earned income. But one area in which you do have a degree of control is your investment-related taxes. And since 2013 has been a pretty good year for the financial markets, you may have some sizable gains. If you decide to sell some of your investments to “lock in” those gains, what would be the tax consequences?
Essentially, the answer depends on two variables: your tax bracket and how long you’ve held the investments.

Our tax code rewards those investors who hold their investments for longer time periods. Consequently, short-term capital gains, earned on investments held for less than one year before being sold for a profit, are taxed at an individual’s ordinary income tax rate, which, in 2013, can be as high as 39.6%. However, long-term capital gains, earned on investments held one year or longer, are taxed at just 15% for most taxpayers and 20% for those in the 39.6% bracket. (At this tax bracket, a 3.8% Medicare contribution tax may also apply to long-term gains, so the top capital gains rate would be 23.8%.) You’ll need to check with your tax advisor for more details.
From a tax standpoint, you are likely to be better off by keeping your profitable investments at least one year before selling them. But are there also other reasons to hold investments for the long term?
In a word, yes. For one thing, if you are constantly buying and selling investments, you won’t just incur taxes — you’ll also rack up commissions and fees. And these costs can eat into your investments’ real rate of return.

Also, if you are always buying and selling, you may be doing so for the wrong reasons. You might be chasing after “hot” investments, even though by the time you buy them, they may already be cooling off — and, in any case, they may not even be right for your needs. Or, you might decide you need to “shake things up” in your portfolio because you haven’t liked what you’ve seen on your investment statements for a longer period of time. But if the overall market is down, it tends to drag everything down with it — even quality vehicles that still have good prospects.

But most importantly, if you are always buying and selling, you will find it difficult to follow a unified, long-term investment strategy — one that’s based on your goals, risk tolerance and time horizon. When you follow such a strategy, you may indeed buy and sell investments, but only at those times when it’s really necessary, such as when you need to further diversify your holdings, a fundamental change in the company has occurred or when the suitability rating of the investment has changed. While diversification can’t guarantee profits or protect against loss, it can help reduce the impact of volatility on your portfolio.
If you want to cut down on your capital gains taxes, holding quality investments for the long term makes sense. And for an investment strategy, a “buy and hold” approach can better position you long after tax season has ended.

  Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Retro Pizza Café makes a pleasant place to dine

  • Written by Tim Hadac

Spring will bring outdoor ambience

As the weather gets warmer in the weeks ahead and this winter’s snow melts away to a mere memory, the owners of Retro Pizza Cafe are looking forward to business in full bloom.
“We opened in October and are doing well now, but when people can come here and sit outside and enjoy themselves, that’s when things will really take off here,” said co-owner James Argyropoulos as he stood inside his cafe, 13000 S. La Grange Road, in Palos Park’s Mill Creek Shopping Center.
The outdoor eating area that wraps around the place can seat up to 70 patrons, on the top of the seating for 24 inside.
Despite the establishment’s name, there is little “retro” about Retro Pizza Cafe. “If people come in here looking for pictures of classic cars, they won’t find it,” he explained with a smile, gesturing at the eatery’s cool colors, sleek design, mural-size photos of European cities, and hipster music flowing from overhead speakers. “The only thing here that’s retro is this [classic-looking] bottle of Pepsi.”
The inspiration for the name came from abroad.
“We’re Greek. We’re in Greece a lot, go to Europe a lot,” Argyropoulos continued, as he talked about a Retro cafe in his family’s hometown in the old country, a popular gathering place. “We wanted to put something here that was like that, in a way--a little more of a European cafe-style place than what you normally see around here.”
As the name implies, pizza is the star of the show. Outsized slices made with fresh ingredients are what draw customers young and old. Full pizzas are also available via pickup and delivery.
“We use quality ingredients, pretty much from scratch,” Argyropoulos said. “Our pizza is just a little bit different than others. We have a slightly sweeter sauce and our crust is right in the middle—between the really thin crust you’ll find in New York and the thicker crust that Chicago is famous for.”
In addition to its signature item, Retro Pizza Cafe has expanded its offerings to include panini, wraps, soup, salad, gelato, cake, muffins, smoothies and more. Plans are in the works to bake additional dessert items onsite, as well as launch a dinner menu that may include such favorites as baked salmon, baked chicken breast and more.
The cafe also serves Intelligentsia coffee, one of just a few locations in the area that offers the high-end, nationally acclaimed coffee.
Proud as he is of the food and beverages, Argyropoulos boasts about the friendly service at the family-owned and operated eatery.
“Everybody who’s involved here is local, family, you know, this is definitely a mom and pop operation,” he said. “You’ve got me, my two brothers, my best friend, and a brother-in-law.
“I grew up here. I know this area. I went to Stagg High School,” he reminisced. “My best friend went to Sandburg. We used to come here when it was Baskin-Robbins, 20 years ago. I used to walk here every day, to eat at Subway and hang out at Jewel, because that’s what there was to do.”
That family feel and familiarity with the area are what helps set Retro Pizza Café apart from other local eateries. “We really do care about every customer that comes in,” Argyropoulos added. “I think you find that a lot in the mom and pop places. Franchise places can be very cold. I’ve worked for franchises. Not that they teach you to be cold, but they have a system that doesn’t leave you a lot of room for warmth. We’re different. We’re a face-to-face kind of place. We talk to our customers, we listen, we’ve changed things at their request, and we’ve added menu items at their request.”

On Valentine’s Day, financial gifts should be super sweet

  • Written by Scott Johnson

Scott-Johnson---HeadValentine’s Day is almost here. This year, instead of sticking with flowers or chocolates for your valentine, why not give a gift with a future? Specifically, consider making a meaningful financial gift.
However, a “meaningful” gift doesn’t gain its meaning from its size, but rather its impact. What types of financial gifts can have the greatest effect on the life of your loved one? Here are a few possibilities:
• Charitable gifts — Your valentine may well support the work of a variety of charitable organizations. Why not give to one of them, in the name of your loved one? Not only will you be helping a group that does good work, but you may also be able to receive a tax deduction for your contribution, assuming the organization qualifies for tax-exempt status. And if you give financial assets, such as appreciated stocks, you may also be able to avoid paying capital gains taxes on the donated shares.
• IRA contributions — Many people don’t contribute the maximum annual amount to their IRA (which, in 2014, is $5,500, or $6,500 if you’re 50 or older). While you can’t directly contribute to your valentine’s IRA, you can certainly write him or her a check for that purpose.
• Gifts of stock — Like everyone else, your sweetheart uses a variety of products — and he or she might enjoy being an “owner” of the companies that produce these goods. You can help make that happen through gifts of stock in these businesses. A financial advisor can help you through the straightforward process of buying stock and transferring it to another person.
• Debt payment — Consider volunteering to pay your valentine’s car payment, or credit card payment, for a month, and then encouraging him or her to put the savings to work in an investment. The fewer debts we have, the more we have to invest for our future.
• Life and disability insurance — Quite frankly, life insurance and disability insurance do not sound like the most romantic of Valentine’s Day presents. And yet, if your valentine is also your spouse, your purchase of life and disability insurance may actually be one of the most thoughtful gifts you can give. Of course, your employer may offer some life and disability insurance as employee benefits, but this coverage may be insufficient for your needs. After all, if something were to happen to you, your insurance may need to provide enough income to pay off your mortgage, send your children to college and perhaps even help pay for your spouse’s retirement. As for disability insurance, many employers’ plans are quite limited in what they provide, so you may need to supplement this coverage with a separate policy. And the possibility of incurring a disability, even for a short time, may be greater than you think. In fact, a 20-year-old worker has a three-in-10 chance of becoming disabled before reaching retirement age, according to the Social Security Administration.
As you can see, you can choose from a range of financial gifts to brighten Valentine’s Day for your loved one. So, consider the ones that make the most sense for your valentine and start “wrapping them up,” so to speak.
Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Investors can learn much from Super Bowl teams

  • Written by Scott Johnson

Scott-Johnson---Head  If you’re a football fan (and probably even if you aren’t), you are aware that we’re closing in on the Super Bowl. This year’s event is unique in that it is the first Super Bowl held in an outdoor, cold-weather site — New Jersey, to be specific.
  However, the 2014 game shares many similarities to past Super Bowls in terms of what it took for the two teams to arrive at this point. And some of these same characteristics apply to successful investors.
  Here are a few of these shared traits:
  • A good offense — Most Super Bowl teams are adept at moving up and down the field and crossing the goal line. And good investors know how to choose those investments that can provide them with the gains they need to keep moving toward their own goals, such as a comfortable retirement. That’s why, at every stage of your life, you will need to own a reasonable percentage of growth-oriented investments, such as stocks and stock-based vehicles.
  • A strong defense — Even a good offense usually isn’t enough to vault a team into the Super Bowl, which is why most participants in the Big Game also have strong defenses. Similarly, the best investors don’t just put all their money in a single type of aggressive instrument and then forget about it — they know that a downturn affecting this particular asset class could prove extremely costly. Instead, they “defend” their portfolios by diversifying their holdings among a range of investments: stocks, bonds, government securities, certificates of deposit, and so on. And you can do the same. Keep in mind, however, that although diversification can help reduce the impact of volatility on your portfolio, it can’t guarantee a profit or always protect against loss.
  • Perseverance — Every team that makes it to the Super Bowl has had to overcome some type of adversity — injuries to key players, a difficult schedule, bad weather, playoff games against good opponents, etc. Successful investors have also had to overcome hurdles, such as bear markets, bad economies, political battles and changing tax laws. Through it all, these investors stay invested, follow a long-term strategy and continue to look for new opportunities — and their perseverance is often rewarded. You can follow their example by not jumping out of the market when the going looks tough and not overreacting to scary-sounding headlines.
  • Good coaching — Super Bowl teams contain many fine players, but they still need coaches who can analyze situations and make the right decisions at the right times. Smart, experienced investors also benefit from “coaching — in the form of guidance from financial professionals. It’s not always easy for busy people to study the financial markets, stay current on changing investment-related laws, monitor their own portfolios and make changes as needed. By working with a financial professional who knows your situation, needs, goals and risk tolerance, you will find it much easier to navigate the increasingly complex investment world.
  As we’ve seen, some of the same factors that go into producing a team capable of reaching the Super Bowl are also relevant to investors who want to reach their own goals. By incorporating these behaviors and attitudes into your own investment strategy, you’ll be following a pretty good “game plan.”

Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Use tax diversification to help manage retirement income

Scott-Johnson---Head  You need to save and invest as much as possible to pay for the retirement lifestyle you’ve envisioned. But your retirement income also depends, to a certain degree, on how your retirement funds are taxed. And that’s why you may be interested in tax diversification.
  To understand the concept of tax diversification, you’ll need to be familiar with how two of the most important retirement-savings vehicles — an IRA and a 401(k) — are taxed. Essentially, these accounts can be classified as either “traditional” or “Roth.”
  When you invest in a traditional IRA or 401(k), your contributions may be tax-deductible and your earnings can grow tax deferred. With a Roth IRA or 401(k), your contributions are not deductible, but your distributions can potentially be tax-free, provided you meet certain conditions. (Keep in mind, though, that to contribute to a Roth IRA, you can’t exceed designated income limits. Also, not all employers offer the Roth option for 401(k) plans.)
  Of course, “tax free” sounds better than “tax deferred,” so you might think that a Roth option is always going to be preferable. But that’s not necessarily the case. If you think your tax bracket will be lower in retirement than when you were working, a traditional IRA or 401(k) might be a better choice, due to the cumulative tax deductions you took at a higher tax rate. But if your tax bracket will be the same, or higher, during retirement, then the value of tax-free distributions from a Roth IRA or 401(k) may outweigh the benefits of the tax deductions you’d get from a traditional IRA or 401(k).
  So making the choice between “traditional” and “Roth” could be tricky. But here’s the good news: You don’t necessarily have to choose, at least not with your IRA. That’s because you may be able to contribute to both a traditional IRA and a Roth IRA, assuming you meet the Roth’s income guidelines. This allows you to benefit from both the tax deductions of the traditional IRA and the potential tax-free distributions of the Roth IRA.
  And once you retire, this tax diversification can be especially valuable. Why? Because when you have money in different types of accounts, you gain flexibility in how you structure your withdrawals — and this flexibility can help you potentially increase the amount of your after-tax disposable income. If you have a variety of accounts, with different tax treatments, you could decide to first make your required withdrawals (from a traditional IRA and 401(k) or other employer-sponsored plan), followed, in order, by withdrawals from your taxable investment accounts, your tax-deferred accounts and, finally, your tax-free accounts. Keep in mind, though, that you may need to vary your actual sequence of withdrawals from year to year, depending on your tax situation. For example, it might make sense to change the order of withdrawals, or take withdrawals from multiple accounts, to help reduce taxes and avoid moving into a different tax bracket.
  Clearly, tax diversification can be beneficial. So after consulting with your tax and financial advisors, consider ways of allocating your retirement plan contributions to provide the flexibility you need to maximize your income during your retirement years.

Scott Johnson, CFP, is a financial advisor with Edward Jones, 8146 W. 111th St., Palos Hills, 974-1965. Edward Jones does not provide legal advice. This article was written by Edward Jones for use by your local Edward Jones financial advisor.