March 27, 2018 § Leave a comment
The Tax Cuts and Jobs Act (TCJA) signed into law in late December created major tax changes for both individual and business taxpayers. Companies have already started deciphering the TCJA and are planning for how the new changes will affect their tax situation in 2018 and beyond.
An additional consideration for businesses is how will the TCJA affect the overall value of the business. A general principle of valuing a business discounts projected after-tax cash flows from the business back to a present value. Higher after-tax projected cash flows lead to higher business valuations. On the surface, companies should expect some reduction in tax, which should correspondingly increase business value.
It is a highly recommended best practice that business owners annually review the value of their company for various planning purposes. Closely held businesses are often the largest asset a business owner holds and it is important for owners to know value fluctuations from year to year. The TCJA provides another opportunity to review the value with the projected value increases for businesses.
Business owners should take this opportunity to review their buy/sell agreements and determine if any changes should be included in the buy/sell based on the updated business value following the TCJA. It is also a good reminder that closely held businesses need buy/sell agreements if they do not have one in place currently.
As a follow-up to buy/sell agreements, business owners should review the funding arrangements if a buy/sell is triggered. Some businesses hold company owned life insurance policies that are intended to fund the buy/sell agreement if needed. With the increase in business values, companies should review if these life insurance policies or other intended funding sources are still adequate to cover the new business values when an ownership transfer occurs.
Estate planning and wealth transfer strategies should be reviewed to factor in the new business values as well. The increase in value of a closely held business may require a shift in wealth planning strategies.
In general, businesses will see reduced taxes and increased cash flows that will increase value with changes enacted under TCJA but each situation will be unique depending on each company’s set of circumstances. These changes provide a great opportunity to review the impacts of your business. We recommend you contact us if you are interested in exploring in greater detail what the effects of the TCJA will have on your situation.
March 12, 2018 § Leave a comment
Take a moment, and think to yourself, who in your life is a great listener?
For some, this may be a hard question to answer. We live in a world where a vast quantity of conversations are two peers taking turns exchanging words with each other, and not actually comprehending what they are saying to one another. Frequently, while the other person is talking, we’re in our own heads crafting our next response. How could we possibly be fully engaged in what our peer is saying, if we’re thinking about what we’re going to say next?
Ultimately, our goal in conversations should be to listen to understand, rather than to listen to respond. I have been reading Rowena Crosbie and Deborah Rinner’s book “Your Invisible Toolbox,” and they discuss how the key to building strong relationships is listening effectively. When reading this, I thought to myself how accurate that point was from my past experiences. I’d like for you to think back to the person (or people) you thought of when you considered who in your life is a great listener – how do you feel about that person/people? I would venture to say that you likely are very fond of that person, and like being around them.
How can we become better listeners?
A good place to start would be to focus on understanding the speaker, before being understood. If the speaker feels understood, they will reciprocate the same courtesy to you when you’re speaking. While understanding the speaker, you will find yourself empathizing or seeing the speaker’s point of view. When this occurs, conversations are more productive, because both speakers feel heard and understood, rather than both speakers being talked at, and thus fostering better relationships. Everyone wins in this situation, then, right?
An additional way to be a good listener is to not interrupt. This one may seem obvious, but it happens a lot in day to day conversations without hesitation. Frequently, we interrupt someone because we’re excited about what they have to say, and want to contribute, or, we’re wanting to share our own experience. Regardless of the reason why, it’s disrespectful. Interrupting gives off the idea that your thoughts and ideas are more important than theirs.
Improving upon your listening skills can assist in your personal development skills as well. As Larry King has said before, “…nothing I say this day will teach me anything. So, if I’m going to learn, I must do it by listening.”
Working on improving your listening can impact many aspects of your life. Listening to your clients and understanding their needs, is vital in today’s competitive marketplace. Additionally, your spouse/partner could feel better after telling you about their day and you actively listening. I suppose there is indeed a reason we were given two ears and only one mouth…
March 2, 2018 § Leave a comment
After an unusually calm 2017, volatility has returned to the stock market and it’s expected to stay. If riding the roller coaster of the stock market makes you nauseous, here’s a couple things to keep in mind.
- Market volatility and market corrections are normal. The unprecedented stability & run we saw in the market from mid-November 2016 thru January 2018, while nice, was highly unusual. In fact, from 1980 – 2017, the average intra-year decline in the S&P 500 was 13%.1
When the market is volatile, it may be best to resist the urge to frequently check your portfolio’s performance. Seeing daily performance can lead to rash decisions, that could end up hurting your portfolio in the long run. Remember, performance should be measured over longer periods of time. You may, instead, want to focus on reviewing your investment objections, asset allocation (further described below), and your long-term goals.
- The media loves to sensationalize market corrections. Headlines screaming “Dow Plunges 1,175 Points” garner more attention than headlines announcing that “S&P Slides 4% During Normal and Overdue Correction.” It is important to look past the headlines and try to see what actual data is being reported.
If you have questions about the headlines and reports in the media, don’t hesitate to reach out to your financial advisor. They should be more than happy to help you understand the data behind the headlines, and more importantly, how your portfolio and financial plan, are or could be, affected.
It’s also important to note, that the same can be said when looking at your own portfolio. Focus on the percentages and benchmarks as opposed to the dollar figure. A $25,000 decrease may seem like a lot, but it would only be a 5% decrease on a $500,000 portfolio.
- There are several investing principals that, by their very nature, help take some of the edge off volatile markets. Whether you realize it or not, these investment principals are likely already in play in your portfolio. The trick is to make sure they’re at play at a level of risk that you’re comfortable with.
Diversification: The whole purpose of diversification is to help reduce risk and the majority of financial advisors preach its importance. Having a diversified portfolio among different companies and asset classes should help lessen your portfolio’s exposure to any one company or asset class and smooth out performance.
Asset Allocation: Allocating your investments between stocks and fixed income (bonds and cash) is a way to help balance risk. Most people aren’t invested in a 100% stock portfolio as they aren’t comfortable with that amount of risk. However, whatever your allocation is, it’s important that you are comfortable with the amount of risk your allocation correlates to. Since stock market drops of 10% are not an unusual occurrence, someone who has a portfolio allocation of 80% stocks and 20% fixed income, should be comfortable with and expect to experience drops of 8% (stock exposure of 80% times 10% market drop) in their portfolio. If you’re not comfortable with the level of risk your portfolio is taking, you may need to reevaluate your asset allocation.
Dollar Cost Averaging: If you are making regular, reoccurring contributions to your investment portfolio, you are dollar cost averaging. Dips in the market are great for people who dollar cost average as it allows your contributions to purchase more shares when the market/prices are lower.
While expecting volatility, seeing past the noise, and having an investment approach and plan that you’re comfortable with can’t prevent market volatility, it can help make the wild ride of the stock market easier to stomach.
As you can see, there are several reasons why it’s important to take a step back during market volatility and really evaluate the big picture before making changes to your long-term plans. If you’d like to discuss the recent return of volatility to the stock market or any other personal financial planning questions you have, please reach out. I’d be happy to meet with you.
This material has been prepared for informational and education purposes only, and is not intended to provide, and should not be relied on for, investment advice.
Advisory Services offered through Wealth Advisors of Iowa, LLC, a State of Iowa Registered Investment Advisor, and an affiliate of McGowen, Hurst, Clark & Smith, P.C. Certified Public Accountants and Business Advisors