Identity Theft

Identity theft and Social Security card

Help! Someone Stole my Identity!

Help! Someone Stole My Identity!

Our government recently notified more than four million government workers that China had hacked the Office of Personnel Management and stolen personal data.  Hackers have breached the Pentagon; Home Depot, Target, Google, Apple, Yahoo, AT&T, eBay, J.P. Morgan Chase… too many major corporations to keep count.  And many others we don’t know about or who have not disclosed.  In my view, cyber security is the new frontier for thieves and one of the greatest threats to our way of life.

The way we live our lives: online banking, credit cards, email, personal data collected and stored just about everywhere we do business, leaves us exposed and vulnerable to hackers.  So what should you do if your personal information gets stolen?  Here’s a summary the four-step guide from the government web site

  1. Call the companies where the theft occurred. Immediately call the fraud department and have them freeze or close your account.  You’ll also want to change your login and password.  This will stop the (financial) bleeding.
  2. Place a fraud alert and get your credit report. You can call any one of the credit reporting bureaus to place a fraud alert:
    1. (888) 766-0008
    2. (888) 766-0008
    3. (800) 680-7289

You’ll only need to file a report to one of these agencies since they are required to notify the other two.  This is a free service and you’ll want to look for a letter from each agency confirming that the alert has been placed on your account.   This will significantly reduce the likelihood of a thief opening a new account in your name.

You’ll also want to get a copy of your credit report so that you can view any activity that has taken place that you did not authorize.  Remember, you get a free credit report every twelve months.  However, if you are a victim of fraud, you can get a free report without having to wait for your twelve month cycle.  These reports can take some time so if you’re willing to pay a small fee, you can get an instant report.  Visit or call (877) 322-8228

  1. File a theft report with the Federal Trade Commission (FTC)

    You can file your complaint online or call (877) 438-4338.  The FTC will use your information to complete your Identity Theft Affidavit which you’ll want to print out and save.  You can also use this site to update your affidavit should you become aware of other items.

  2. File a report with your local police department. Local police may be unfamiliar with this process so you’ll need to be prepared by showing them:

    1. FTC’s Memo to Law Enforcement – Available at the website, this memo provides police the reason the report is necessary and the basics of data that should be included in the report.
    2. Have a copy of your Identity Theft Affidavit.
    3. Have a government issued ID with photo.
    4. Be prepared to provide proof of your address. A Utility bill, mortgage statement or rental agreement should suffice.

Be sure to get a copy of the police report.  Combining the Identity Theft Affidavit and the police report together create your Identity Theft Report which you can use to prove to businesses that someone stole your identity.  It also guarantees you certain rights.  For more information, visit

Instant Recall!  Last week I touted the strategy of using a password manager app that would allow you to remember only one password and then store all your other passwords under the app.  It allows you to click on your stored information and then automatically enters your login and password.  Well, the leader of the pack, LastPass, announced Monday that they’d been hacked!  They do claim that no user’s logins or passwords were stolen but it does remind us that no one is safe from Hackers!

When should I update my Power of Attorney?

A Power of Attorney (POA) is a document you have drawn, typically by an attorney, whereby you appoint someone as your ‘agent’ to make financial decisions on your behalf under certain circumstances.  In the typical POA, this means if you become incompetent due to sickness or injury, this person is able to step in and sign checks on your checking accounts, withdraw and deposit money into your bank account and generally act in your place for any and all financial decisions.  Often the ‘agent’ is a spouse or someone you trust to make these types of decisions for you.  Typically the POA comes in one of two forms: a general and durable POA or a ‘springing’ POA.  With a general and durable POA, your agent can act on your behalf at any time…even when you are fully competent.  With a springing POA, your agent must have a letter from your physician declaring you incompetent.  The general and durable POA is less trouble to use since your agent doesn’t have to prove incompetence but we only recommend it where you have a very high level of trust your agent won’t use it unless necessary.  Otherwise, we often recommend the springing POA.  I should note that there are many different forms of POAs that are drawn for specialized purposes.

Prior to 2012, we were finding it increasingly difficult to get financial institutions to accept validly drawn POA’s.  For example, we had a case where we submitted a request for a Required Minimum Distribution (RMD) from an IRA using a POA for an incompetent person.  The financial institution rejected the POA saying it lacked specific language that the institution required.  Failure to take a RMD in a timely manner results in a 50% federal penalty and getting an updated POA from an incompetent person is not possible…so you can see the dilemma.  We did figure a work-around in this case but the situation got so bad that a group of attorney’s drafted legislation which was passed by the Alabama legislature effective January 1, 2012, which now compels the financial institutions accept the POA.  So if you have a POA dated prior to that time it may, or may not, be valid depending on the institution.  It’s vitally important that you have a POA for if you don’t have one and become incompetent, someone will have to hire an attorney, go before the court and get a court issued POA.  This can be expensive, time consuming and the document will likely lack the flexibility that you’d prefer.  Be sure your attorney is familiar with the new law.

Spring Cleaning for your Personal Finances

Springtime is just around the corner and that means it’s almost time for spring cleaning. What I love about spring cleaning is the feeling of accomplishment once it’s done. It’s like you have removed all of the deadwood and are ready for new growth. Here’s how you can carry the concept of spring cleaning over to your finances:
1. Contribute to your IRA early. Most people wait until the end of the year or perhaps early the following year to contribute to their IRA. By investing early, you get the benefit of months of extra tax deferred growth. Between now and retirement, this can add up to quite a lot of extra money. For example, assume for the next thirty-five years you are going to invest $5,000 into your IRA each year. Assuming earnings of 10% per year, how much of an advantage would it be to invest in January of each year versus December? Just by investing early, your IRA would be worth an extra $135,000!
2. Dump the deadwood in your portfolio. Use this as an opportunity to review your investments. The stock market has had strong performance since March 2009. Now may be a good time to rebalance your portfolio. If some stocks or stock mutual funds have done exceedingly well, consider if it’s appropriate to take some profits and reallocate that money to other positions. You may have other positions that appear to be on life support with no chance of recovery and now may be a good time to cull them from your portfolio. We often find cases where someone is holding numerous positions too small to impact the portfolio no matter whether they rise or fall sharply.
3. Check your 401k contribution. In addition to reviewing your investments, check to make certain that you are taking full advantage of any matching contributions offered by your company. Also check both the primary beneficiary and contingent beneficiary designations for your retirement plan. Most often the primary is the spouse but the contingent is wrong or left blank. If left blank and your spouse happens to predecease you, the default will be your estate based on your will if you have one. This can cause undesirable results.
4. Review your estate plan. Finally, congress has settled the estate tax laws. It only took them ten years but now we know what the rules are and it means you should review your wills and overall estate plan. Two items of particular concern are:
· Family trust formulas. Many older wills direct that at the death of the first spouse, the maximum amount allowed by law goes directly to a trust that benefits the family. ‘Family’ sometimes includes the surviving spouse and sometimes it does not. Under the new estate tax law the amount going to this type trust could be the first $5 million. For many families, that would be 100%, leaving nothing going directly to the surviving spouse and potentially substantially cutting him or her out of the will.
· Power of attorney. In general, you need to update your power of attorney every three to five years or run the risk that a financial institution will reject it. In my home state of Alabama, this became such a problem that a group of attorneys got legislation passed in the state legislature in January 2012 requiring that financial institutions accept the power of attorney or face legal penalties.
5. Review your insurance policies. Ask yourself these questions: If I died suddenly, do I have enough life insurance? If I became disabled through sickness or a car accident, do I have enough disability income insurance? If necessary, how would I pay for extended nursing care? If you don’t like your answers, meet with your agent for a review and recommendations.
6. Turn spring cleaning into a money maker. Whether cleaning out your closets and donating your clothes to charity or holding a yard sale, you can turn a chore into a money making enterprise. If the kids are old enough, involve them in your enterprise and let them share in some of the profits. You may be planting in them the seeds of an entrepreneur!

Cash in Your IRA for Home Imporovements?

Question: I plan to do home improvements that will cost $35,000. I have saved $15,000 and while I know taking money from my IRA is generally not a good idea I’d rather do that than get a loan. What are your thoughts? J.R.
Answer: Since you are under age 59½ you’ll face both income taxes and a ten percent federal penalty. By my estimate, in order to raise the $20,000 of additional money you need for your renovation, you’ll need to withdraw a total of $31,500 and set aside $11,500 for income taxes and penalties. That’s a very high price to pay. Let’s look at a couple of alternatives.
1. Get a home equity line of credit (HELOC). The interest rates for these loans are based on the bank’s prime lending rate which is currently 3.25%. I’ve seen loans anywhere from prime minus one percent to prime plus one percent (or more depending on your credit score). They are often based on an ‘interest-only’ minimum payment so initially your payments based on a prime-rate loan would be under $60 per month. You could then use extra money, bonuses, and pay raises to pay off the loan over time. As an added bonus, your interest payments are deductible so Uncle Sam is providing a helping hand. Assuming interest rates remain unchanged and you systematically repaid this loan over five years, your total interest charges would be approximately $1,700. Throw in the benefits of a tax deduction and you’ll cut that to less than $1,300. Compare this to the $11,500 of taxes and penalties if you simply take an early withdrawal.
2. Borrow from your 401k plan. Most plans will allow you to borrow 50% of your balance up to $50,000. This is a tax-free loan assuming it’s repaid. Under most plans, these loans must be repaid over a five year period and the typical interest rate is prime plus one percent. Note that the interest you are paying here is to yourself. In other words, you are acting as your own bank. Your employer will also set up an automatic repayment schedule that will be withheld from your paycheck. Based on current interest rates and assuming you get paid every two weeks, the withheld amount would be about $200. A couple of warnings are in order: If you leave the company, most plans require the loan be repaid in full. If you default on the loan, the unpaid balance would be treated as a withdrawal and subject to the federal penalty, if applicable, as well as being subject to income taxes.
Both of these two options are significantly better financial options than simply taking an early withdrawal and paying the penalty and taxes. If you start with one of these two options and change your mind, you can always take an early withdrawal and pay off the loan.
Question: I bought EE Bonds in 1985 which will mature in 2015. What’s my best plan of action? N.W.
Answer: EE Bonds purchased in 1983 accrued interest at 7.5%. These bonds ‘recalculated’ the interest rate every ten years. Today, they are paying 4% until maturity in 2015 at which time no interest will be paid. Four percent is much higher than rates you could get at any bank today so I recommend holding your EE Bonds until maturity and then cash them in.
Question: In 1999 our son and son-in-law purchased a long-term care insurance policy on my husband and me and elected a 10-pay premium plan. My husband is in good health while mine is excellent. We are age 80 and 81. If we never use the policy benefits, are all the premiums they paid lost? Is it a ‘use it or lose it’ deal? V.J.
Answer: It depends. Most long-term care insurance policies are based on a use it or lose proposition. In most cases, you can pay a higher premium and get a contract that guarantees that any unused benefits will be returned to the policy owner at the death of the insured. The best way to find out the answer is to call the agent who wrote the policy.

Can I Buy Real Estate with my IRA?

Question: I recently read about using an IRA to own real estate. I am very interested in taking money in my IRA and buying a rental property. Do you have to have a specific kind of IRA? What are the pros and cons of this strategy? L.B.
Answer: It is possible to own rental properties in your IRA and a lot of people do this. However, it generally cannot be done through a traditional brokerage firm or bank. You’ll have to open up a self-directed IRA account with a firm that specializes in custody of these types of ‘private’ investments (Google: Self-Directed IRA). The obvious advantage of holding assets in an IRA is that all income and gains will be tax deferred until you choose to make withdrawals. Owning real estate inside an IRA can have some disadvantages including:
· Depreciation tax benefits lost. One of the big benefits of owning rental real estate is that you get to depreciate the building and equipment. This benefit is lost when the real estate is held in an IRA.
· Interest deduction is lost. If you have a mortgage on the property, your interest payments are not deductible.
· Converts capital gains into ordinary income. Another advantage of owning rental real estate outside an IRA is that profits from a sale are treated as long-term capital gains, typically taxed at a maximum federal rate of 15%. Any gains from a sale of your property held inside your IRA will eventually come out as ordinary income.
In addition, there are a number of prohibited transactions. For example, you cannot buy a beach home for rental and also use the home personally. This goes for both you and family members. If you get a mortgage on the property, you cannot personally guarantee the loan.
Perhaps the best strategy for dealing in real estate inside your IRA might be to act as a lender where you hold a mortgage with the real estate as security for the loan. This way you don’t give up any of the tax benefits and the interest payments to you, which normally would be taxed at ordinary income rates, will be tax deferred.
Be sure you fully understand the fees charged by the custodian and remember that all expenses related to the property must be paid from your IRA so you’ll need to be certain that you have the necessary cash to pay unexpected bills.
Question: If I want to make a sizeable transfer to a Roth have you seen cases where a bank would loan for the taxes? B.M.
Answer: Wow! Now this is a question I have never been asked before! And no, I’ve never heard of someone taking out a bank loan to pay the taxes on a Roth IRA conversion but that does not mean it’s not possible. You could not put up your Roth as collateral for the loan but assuming the bank would give you a signature loan or accept other collateral, there are no rules that I am aware of that would prevent this. Obviously, you want to have a specific plan for repaying the loan. If you used a home equity line of credit, your interest payments might be deductible but you’d need to check with your tax advisor to be certain.
If you’d like to have me answer your financial question email me at and place in the subject line. Consult your own professional legal, tax or financial advisor before acting upon this advice.

Year End Tax Tips for 2012

As 2012 quickly comes to a close, now is the time to sit down and consider what you might do to reduce your April 15 tax bill. This year will be a particular challenge because Congress is planning significant changes to the tax laws and we may not know the new rules until after Dec. 31. However, we can make some assumptions that are very likely to be true and take actions now to reduce the tax bite for this year.

• Capital gains. The federal tax on capital gains is set to rise from the current 15% to 20% next year. This presents an opportunity to reduce concentrated positions before year-end. If you have a large concentrated position in a stock, you’ll likely never have an opportunity to sell and diversify at a lower rate than this year. For example, say you own Apple with a $100,000 gain. If you sell this year your federal tax would be $15,000. If you wait and sell next year, the tax would rise to $20,000. If you fall under President Obama’s ‘rich’ category – individuals making over $200,000 or couples making over $250,000 – next year you’ll be hit with an additional 3.8 percent Medicare contribution tax on the lesser of net investment income or the modified adjusted income over the threshold amount.

• Charitable gifts. Another way to reduce your income taxes is to make gifts to qualified charities. This can be in the form of cash, securities or clothing items. If you’re thinking of gifting securities, it’s generally best to give appreciated securities such as the Apple stock in my example above. If you love your Apple stock, you can repurchase it immediately, meaning no 31- day waiting period applies. If you fall into Obama’s rich category, the Republicans have indicated they are willing to “raise revenue” by eliminating deductions for high-income earners. We have no idea what that means, but it could mean a loss of part or all of the charitable deduction. If you are committed to giving annually to your religious organization or charity, consider making several years’ worth of gifts this year by setting up a Donor Advised Fund. This guarantees you’ll receive the full deduction this year but allow you to dole your gifts out over the next several years. In Birmingham, contact the Community Foundation of Greater Birmingham at 205-327-3800. Note that to receive a full deduction this year, gifts of cash cannot exceed 50 percent of adjusted gross income while the limitation on appreciated assets, such as stocks, is 30 percent.

• Retirement plan contributions. If you have not maxed out your contributions to your company 401-k you can use the remaining paydays to increase your investment and income tax deduction at the same time. You’ll need to contact your human resources department for their assistance in adjusting your payroll deduction.

• Convert to a Roth IRA. When you convert a traditional deductible IRA to a Roth IRA, you create ordinary income. For high income taxpayers the tax bite will be much less this year than next. If it turns out not to be a good deal one feature under a Roth conversion is you are allowed to reverse the transaction any time before filing your tax return for 2012. That gives you about eleven months from now to determine if it was a good deal.

• Changes to Medicare. Don’t forget to review your Medicare plans to ensure you have the most appropriate plan based on your situation. The open enrollment period ends Friday Dec. 7.

Meet with your accountant before the end of the year to see what other strategies may be available to reduce your 2012 taxes.

Black Friday – Winning the Game

With Thanksgiving fast approaching, we each have so many things to be thankful for including living in the greatest nation in the world. The day after Thanksgiving, Black Friday, marks the official kick-off of the holiday shopping season and with a bit of planning you can get great deals on gifts without starting the New Year with new debt! Here are my 5 strategies for (financially) surviving the holidays:
  1. Develop an overall game plan. Don’t spend money you don’t have. Check your savings accounts balances and decide how much you can afford to spend without going into debt. Then either pay cash or, if using a credit card or check, track total spending against your maximum spending goal.
  2. Build a gift list. Make a list of all of the folks that you plan to give a gift then decide a spending range for each person. When you’re done, add up your totals and make sure the total is not far out of line with your spending goal. If it is, review and adjust your budget as appropriate. Our associate, Wendy Weber, said her family reduced the number of ‘family’ gifts by drawing names so that everyone only bought and received one gift…a great savings of time and money!
  3. Focus on the children. If your resources are limited, consider establishing a ‘moratorium’ on gifts between spouses and friends and, instead focus on gifts for your children for they are the people who are most excited and have the greatest expectations during this holiday.
  4. Find the best deals. Today, it’s easier than ever to find the best price on just about any particular item. Major chain stores such as Walmart and Target offer price protection and there are smartphone apps that allow you to ‘swipe’ an item in one store and it’ll give you the best prices from nearby competitors. Often you can use this information to negotiate that best price right where you are shopping. Here are 4 of the top free apps:
·        Price Check by Amazon While you’re at the store, you can either take a photo or scan the bar code using this app and it’ll give you Amazon’s price for the same product.
·        RedLaser With this app you scan the product barcode and it will give you price comparisons of near-by stores plus on-line prices as well.
·        ShopSavvy This app is similar to Red Laser.
·        Coupon Sherpa Fire up this app in the store you’re visiting and it’ll list the current discount coupons. It’s limited to mainly big chain stores.
  1. Reach out and touch someone. While our economy has continued to improve over recent months, there are still literally millions of Americans out of work and in financial pain. Use this season to reach out to help someone less fortunate than you. While donations are always welcome, this doesn’t have to cost you a dime. Consider giving your time to help at a shelter or community kitchen or give away clothing items that you no longer use. If you have young children consider bringing them into this giving activity. Children are great learners and helping others in need is one of life’s greatest lessons.

5 Predictions for the New Congress

In the aftermath of the elections, our nation faces a number of unprecedented challenges both immediately and in the near future. Here’s my best guess at how they’ll play out over the next few weeks and months ahead:
1.       Fiscal cliff – part 1: Automatic spending cuts. As part of the 2011 debt ceiling compromise, members of Congress agreed to across-the-board automatic spending cuts beginning January 1 if the ‘super committee’ could not agree on a detailed spending cut plan. This would mean cuts for an estimated 1,000 government programs including deep cuts in both defense and Medicare. This is not going to happen. Neither is Congress as a whole going to resolve program-by-program budget cuts the super committee failed to do before this year ends. Over the past four years members of Congress have proven they are adept at the game of ‘kick the can down the road’ and I predict that their first piece of ‘compromise’ legislation since President Obama was re-elected will be to vote to ‘postpone’ the automatic spending cuts until sometime next year.
2.       Fiscal cliff – part 2: Higher taxes. The Bush tax cuts are set to expire December 31st resulting in significantly higher income tax rates for both middle-income and higher-income taxpayers. This is going to be a game of ‘Bluff’ between the House and Senate. I suspect the U.S. House of Representatives to make the first move by passing legislation extending the current Bush tax cuts through 2013. Their explanation will be to, “Give Congress more time to work out a compromise”. The Senate will respond with the Obama inspired legislation offering to extend the Bush tax cuts for all but the wealthiest Americans…those earning more than $200,000 ($250,000 for couples) per year. We’ll have to wait to see who blinks first. My bet is that the Bush tax cuts will expire due to no action by Congress before year-end with the Republican controlled House and the Democratic controlled Senate blaming each other while the American taxpayer is left holding the bag. As part of this, I don’t expect Congress to renew the payroll tax cuts for the 160 million wage-earners.
3.       Death taxes. As part of the expiration of the Bush tax cuts, the amount of wealth exempt from death taxes will drop from $5,120,000 this year to $1,000,000 next year. In addition, the tax rate on assets above those amounts will rise from 35% this year to as much as 55% next year. This means that many middle-income taxpayers who own their home and have enough life insurance to protect their family will, for the first time, face death taxes. Congress will not resolve this before the end of the year but I do expect that sometime during 2013, Congress will raise the exempt amount from $1,000,000 to $3,500,000 or higher and make the new law both permanent and retroactive to January 1, 2013. This is because President Obama had offered this as part of a budget compromise before the elections. A simple alternative would be to make the current law permanent thereby setting the exemption amount at $5,000,000 with automatic cost-of-living adjustments.
4.       Deficit. Everyone is concerned about the deficit. Unfortunately, both Republicans and Democrats lack the political will to enact meaningful legislation that will significantly address this growing problem. We’ll hear lots of conversation from both sides of the aisle about what must be done but in the end I expect to see the deficit grow by more than $1 trillion in 2013.
5.       Social Security and Medicare. It’s no secret that both of these programs are on a path of self-destruction in their current form. Something must give…but don’t expect a ‘fix’ over the next four years. First, the Republicans are scared to death that they’ll lose control of the House in 2014 and that Obama will be free to rule over all of Congress in his last two years. The Democrats are still stinging from their losses in 2010 and will avoid tackling the toughest issues we face. Again, expect a lot of conversation but little action.
What does all of this mean for investors? In a word…well two words, continued uncertainty. The markets hate uncertainty as do business owners so the markets will remain volatile and business owners will remain cautious. However, I don’t believe the economy will slip into another recession. The economy should continue its slow recovery including a slow recovery in the job market. Corporate America continues to strengthen their balance sheets by storing cash, reducing debt and closely monitoring their expenses. The stock market should see volatile but rising prices over the next four years. There will be upward pressure on interest rates and that spells trouble for the once-shining bond market.


10 Tips for Divorcing Couples

The ‘D’ word. It happens in about 50% of the marriages in America. The reasons for divorce varies by couple but most of the cases have at least some roots in money issues. The tendency for most couples is to run out and hire a lawyer and let them do battle for you. Before you hire the lawyer, a better choice is to hire a financial advisor; someone who can help you sort through the financial minefield that will almost certainly follow. The process of divorce is often a highly emotionally charged environment that gives rise to making many financial mistakes that can be felt for years to come. Here are a number of issues you should consider before hiring your attorney:
1.      It’s most important to understand your current financial situation. What do you own and what do you owe? Be sure you know whose name the assets are in as well as whose name is on the debts. I’ve seen lots of cases where one spouse’s credit was ruined because her name was on debt that the other spouse managed…and managed poorly. Your tax return is an excellent source of financial information. It will indicate where different accounts are located when interest, dividends are paid or capital gains or losses are taken.
2.      Separate your credit. To the extent possible, you’ll want to establish new credit on your name solely while removing your name from joint credit where possible. This will require closing joint credit cards and bank accounts.
3.      Store up emergency cash. You’re going to need it. One or both of you will have to set up new living quarters and it’s going to be expensive.
4.      Do future budget planning. You may be surprised at how much more it will cost you living separately. A financial planner can be especially helpful in helping you think through what your future expenses might look like. Your planner can help you set up a financial management system for tracking income and expenses. An excellent system we often use with clients is It’s easy to use and it’s free!
5.      Consider tax consequences when splitting up assets. Would you be better off receiving retirement plan assets or cash? More alimony and less child support or the other way around? Who should claim the children as dependents on their tax return? Would you be better off with a straight property settlement versus alimony? Each answer depends on your and your spouse’s particular circumstances but poorly thought-out decisions can lead to long-term negative circumstances.
6.      Change your beneficiaries. I recently witnessed a case where the husband died and the surviving spouse came to us for financial help. We soon found out that he still had his previous wife’s name on his checking account and they had been divorced over twenty years! We had to hire a lawyer to negotiate a settlement. Make sure your ownership and beneficiaries have been changed on all accounts and insurance policies.
7.      Consider your insurance needs. First, you’ll want to make certain that you’ll have uninterrupted health insurance. You may also want to consider requiring life insurance to guarantee continued alimony and child support should your ex-spouse die prematurely.
8.      Decide now how college will be funded. College costs can be an enormous expense. If possible, address how it will be paid in the divorce agreement. If you don’t, It’ll be a nagging question unanswered until it’s time for your child to go off to college.
9.      Update your will and estate documents. You’ll need a new will, power of attorney and healthcare directive especially if children are involved.
10. Mediate. Often attorneys are used to extract revenge on the other party. While this may be emotionally satisfying, it can be financially devastating. A few years back I counseled a young couple that they should mediate their divorce. They had relative few assets to ‘split’ and I estimated having their individual lawyers ‘battle it out’ could cost over $80,000. They chose to do battle and their attorney’s bill exceeded that amount…money they both desperately needed.
Divorce is a messy business, but a business none-the-less. Try to separate the emotional aspects from the business aspects and be sure to get the help you need to get the best financial result possible.


What Blue Chip Stocks Should I Invest In?

Readers Ask Abut Blue Chip Stocks &  Here’s what’s on their minds:
Question: “I am interested in investing about $100,000 in blue chip stocks. What are three stocks you’d recommend that pay good yearly dividends?” J.W.
Answer: First let me make a point that you’ll want to own a minimum of ten to twenty stocks in order to reduce what’s called ‘single-company risk’… the risk that the failure of one company that you own devastating your entire portfolio. A lot of people in Birmingham learned this lesson in 2008 when they refused to diversify a concentration in bank stock and saw their wealth and income devastated as bank stocks plummeted 70% or more and slashed dividends. Three blue chip stocks that we currently own for clients are Southern Company yielding 4.2%; ATT yielding 5.8%; and Kimberly Clark yielding 3.8%.
Another reader asked a similar question but wanted a recommendation for an Exchange Traded Fund (ETF). ETFs are baskets of stocks rolled into an investment product similar to an index mutual fund. You can buy and sell them like stocks. For example, iShares Dow Jones Select Dividend Index Fund (symbol DVY) is currently yielding about 3.5% and last year’s return was over 11%.
Question: “My husband and I are both age 71 and therefore must take Required Minimum Distributions from our IRA accounts. He chooses to continue working so between his paycheck and our Social Security we do not need two IRA distributions. What would you recommend we do with the money?”
Answer: You have a number of choices. Most people will simply open a personal investment account at a discount broker such as Charles Schwab or Vanguard and invest in no load mutual funds. Be sure you allocate a portion to bonds as well as stocks. An example of a mutual fund that does this for you is Vanguard Wellington (VWELX) which allocates about 34% to bonds and the balance to stocks and is yielding about 2.7%. An alternative would be to use your IRA distributions to pay down debt, if you have any or you could put it in CDs at your bank.
Question: “I am receiving a retirement from the Teacher’s Retirement System of Alabama. What percentage would you suggest I invest in stocks versus bonds for 2012?” M.D.
Answer: Generally, I’ll start this conversation with a 60% allocation to stocks; 40% to bonds then make adjustments based on the particular client facts. With this allocation, I feel you’ll receive 70% or more of the stock market return over a full market cycle (5-10 years) while experiencing about half the volatility. If you’re feeling more venturesome, you might increase your stock allocation to 70%. Except for the most worried and conservative investors, I’d have at least 30% in stocks.
And from the same reader, “Do you recommend a 529 college savings plan for my grandchild?
Yes! The gift of a good education is one of the greatest gifts you can give a family member. Alabama has a great plan and you can check it out at  Be sure to use the Vanguard funds as your investment choice.
Question: “I am thinking of giving stocks to my grandson instead of presents for his birthday. He is going to be thirteen and rather than giving him something that is a throwaway gift, this could be a learning experience. Could you give some pointers particularly how it would relate to his parents tax situation? S.C.
Answer: It would take a pretty mature thirteen-year-old to get excited about receiving stocks instead of the latest game for his Xbox player so you might brace yourself for the lack of hugs and kisses. Consider choosing a stock of a company he can relate to such as Disney or Microsoft (the maker of Xbox) and you might want to receive the actual stock certificate and have it framed as a visual reminder that he ‘owns’ the company. Either you or his parents will need to be the ‘owner as custodian’ for your grandson since minors cannot own property. Any dividends paid will be reportable on his income tax return which may mean one will need to be filed for him for the first time. Most likely, no taxes will be due unless he has other income. Any unearned income in excess of $1,900 must be reported on the parents tax return with taxes paid at their tax bracket.