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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.

Prepared for the unexpected?

  • Written by Scott Johnson

Scott-Johnson---Head  When you’re working to achieve your financial objectives, you will encounter obstacles. Some of these can be anticipated — for example, you won’t be able to invest as much as you want for retirement because you have to pay for your mortgage. Other challenges can’t be easily anticipated, but you can still plan for them — and you should.
  Obviously, the word “unexpected,” by definition, implies an unlimited number of possibilities. However, at different stages of your life, you may want to watch for some “expected” unexpected developments.
  For example, during your working years, be prepared for the following:
  • Emergency expenses — If you needed a major car or home repair, could you handle it? What about a temporary job loss? These events are costly — especially if you are forced to dip into your long-term investments to pay for them. To help guard against these threats, try to build an emergency fund containing six to 12 months’ worth of living expenses, held in a liquid, low-risk account.
  • Investment risk and market volatility — Extreme price swings are unpredictable, and they can affect your investment success. To defend yourself against wild gyrations in the market, build a diversified portfolio containing quality investments. While diversification, by itself, can’t protect against loss or guarantee profits, it can help reduce the effect of volatility on your portfolio. And here’s one more thing you can do to cope with the ups and downs of investing: Maintain a long-term perspective. By doing so, you won’t be tempted to overreact to short-term downturns.
  • Long-term disability — One-third of all people between the ages of 30 and 64 will become disabled at some point, according to the Health Insurance Association of America. Disabilities can be economically devastating. As part of your benefits package, your employer may offer some disability insurance, but you may need to supplement it with private coverage.
  • Premature death — None of us can really predict our longevity. If something happens to you, would your family be able to stay in your home? Could your children still attend college? To protect these goals, you need adequate life insurance.
  As you approach retirement, and during your retirement years, you may want to focus on these challenges:
  • Living longer than expected — You probably don’t think that “living longer than expected” is necessarily a bad thing. However, a longer-than-anticipated life span also carries with it the risk of outliving your money. Consequently, you may want to consider investment solutions that can provide you with an income stream that you can’t outlive. Also, you’ll need to be careful about how much you withdraw each year from your various retirement and investment accounts.
  • Need for long-term care — If you had to stay a few years in a nursing home, the cost could mount to hundreds of thousands of dollars. These expenses could jeopardize your financial security, so you’ll need to protect yourself. You could “self-insure,” but as that would be extremely costly, you may want to “transfer the risk” to an insurance company. A financial professional can help explain your choices.
  None of us can foresee all the events in our lives. But in your role as an investor, you can at least take positive steps to prepare for the unexpected — and those steps should lead you in the right direction as you move toward your important goals.

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.

Personal info is exceptionally vulnerable in 2014

  • Written by Shelly Palmer

TECHNO TALK

If we learned anything this past year, it’s that information we store online is exceptionally vulnerable. Our metadata (the data that describes who we are and what we do) is in the hands of people who are about as successful at protecting it as 1850s bankers were at protecting money in the Old West.

Sure, the metal safe looked strong and secure, but a motived bank robber with a stick of dynamite had all the tools required. In just the past few weeks hackers have had their way with Target Stores, Snapchat and thousands of other “targets of opportunity” that you will never hear about.

How do they do it? Every way you can imagine (and a bunch of ways you can’t).

We can start with the government. It’s not strictly hacking; it’s more like manhandling, but… by now it should be abundantly clear that the NSA has access to everything that it wants to have access to. Everything on your iPhone, your Wi-Fi signal, laptops you bought online, your private cell phone conversations, your email address books… the list goes on and on and on. At this point, anything the NSA wants to know about you, it will know about you.

I’m not making a political statement, nor am I suggesting that there is anything right or wrong with the government having access to virtually everything it wants to have access to. That said, there are all kinds of additional security issues caused by systems that allow certain information to be tracked by some systems, but not by others. To say nothing of the psychological issues caused by the knowledge that when you are connected, your electronic trail is available. And, for all practical purposes, cannot ever be erased.

Add to this, malicious hackers who are interested in profiting from the sale of your information, interested in making a name for themselves or simply trying to make a point about something. There’s nothing anyone can do about this group of hackers or these types of hacks. They are a fact of life in the Information Age. However, there are a few things you can do to protect yourself in 2014.

Target’s Black Friday Breach

Over 40 million credit cards were compromised after a massive attack on Target during the weeks leading up to Christmas. There’s nothing much Target can do to help you at this point. Sure, its CEO is offering free credit monitoring, the company is on the hook for $3.6 billion in fines and banks are capping cash withdrawals after it was announced that yes, the breach compromised PIN numbers, too, even though.

Target initially said they were safe — they’re not safe and you’re on your own.

If you shopped at Target between the middle of November and the middle of December, there’s a good chance your card is compromised. If your bank hasn’t canceled your card already, strongly consider calling up your credit card company and canceling it yourself. Here’s a helpful guide as to what to do if your credit card is stolen. Basically: cancel your card, monitor your statements, create a fraud alert, and move on.

Target’s breach was both better and worse than most other hacks we saw in 2013. It was worse because its repercussions could be of a greater impact than having your Yahoo password stolen, for instance. Having someone gain access to your credit card info could max out your credit cards and destroy your credit score. But it’s better because every financial institution is aware of the breach, and most credit cards have fraud protection, ensuring you won’t be stuck paying for anything you didn’t actually buy.

Target’s breach was also an example of just how helpless we are. All you did was buy Christmas presents, or maybe just some groceries, and suddenly your life became far more complicated and annoying. And, this is just the beginning — expect this kind of thing to happen on a regular basis – truly, nothing can stop it.

Snapchat’s Phone Number Leak

It’s already known that even though Snapchat is designed to make it seem like your snaps (the photos you send your friends and family) disappear once you open them, anyone can actually save them without you even knowing.

Forget a “Screenshot!” alert; you can sneak in through the back door of Snapchat and save anything and everything you receive. While it’s not a hack organized crime would bother with, it’s worth repeating that snaps and every other picture you ever take with a digital camera enter the body of knowledge of mankind and will be seen by everyone in the world. So, “Carlos Danger,” never take a picture of something you don’t want the world to see.

Back to bigger hacks. This past August, Gibson Security published a report that said the coding in Snapchat made it possible for anyone to find out a bunch of information about any account, including your username and phone number. Gibson published a new report about the same thing in December, which Snapchat addressed by saying that it wasn’t an issue. Well, it turns out that Snapchat was wrong and that it was, in fact, an issue. A website called snapchatDB posted SQL/CSV files that contain the username and associated phone number for a “vast majority” of the service’s users — over 4.6 million users, to be precise.

There’s not a lot of text-based private information on Snapchat — you don’t need to fill in too many fields to start texting selfies to your friends. But Snapchat’s user base is mostly teens and tweens, and Kevin Poulsen of Wired Magazine points out the biggest fallout from this leak: possible stalking. How’s that for your first tech life lesson? Don’t have fun with your friends or you might be harassed because bad men want to ruin your day!

What Can We Do?

The most important thing we can do is to remain vigilant. Keep track of everything, and if anything seems suspicious, act on it. Start getting a bunch of weird emails? Can’t log in to an account you should be able to? See some weird pending charges on your credit card statement? Take action!!! YOU are the best defense against the mean, awful, angry world of hacking.

If you suspect your accounts are compromised, change your passwords. Make them as secure as can be. Spending a few extra seconds typing in a password every once in a while is worth it to make your account more difficult to crack. Use the guidelines I laid out. It might seem like a hassle, but keeping unique passwords for every site you use (I know, you probably have accounts for dozens if not hundreds of sites) will keep all your other accounts secure. But it’s (arguably) better than the alternative: having one hacked site force you to change dozens of passwords at once.

If your credit card statement looks funky, call your bank immediately. Dispute any charges, then cancel your card. People can get your credit card information any number of ways; banks (usually) won’t hold that against you. Be proactive, rather than reactive, and make sure you’re protected.

Lastly, and most importantly, keep all of your credit card numbers and the associated contact information for canceling your cards in a place where you can quickly, securely get to them. Using a password wallet or other specialized software will make it much easier to go through the process. “Best practices” says to keep copies of this data in several different places (including on paper) and stored as safely as you store your household cash or jewelry. The goal is to be able to quickly contact every credit provider. That’s all you can do. The hacks we’re seeing now are being done by professionals who simply want to sell your information and defraud the financial institutions you patronize — they don’t care about you personally — it’s strictly business.