Wells REIT II declined 25%

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[November 10, 2011] Federal regulators have been concerned with nontraded real estate investment trust (REITs).  What appears to the norm for non-traded REITS, the giant Wells REIT II has declined 25%.

Wells REIT II closed their window to new investments on 6/30/2010, bringing in $5.9 billion. The portfolio invested in 93 office buildings in 24 states, Washington, D.C., and Russia, covering more than 23 million square feet. In about a year, share value declined from $10 per share to an estimated value of $7.47 per share for a decline of 25% in value. Following are figures that we have compiled from 3rd party sources:

On 6/29/2011 the fund declared 2nd Quarter 2011 distribution of $0.125 per share or 5% per year.

In September, 2011, the Financial Industry Regulatory Association (FINRA) issued an investor alert cautioning investors on the dangers of non-traded REITs, including liquidity risks, valuation methods, and excessive fees.

FinancialEdge.net encourage investors to do due diligence prior to investing in non-traded REITs. Please contact us at paulsid@financialedge.net should you wish to discuss potential investment opportunities.

more:

http://www.wellsreitii.com

Social Security Announces 3.6% Benefit Increase for 2012, First Since 2009

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Social Security recipients will receive a 3.6% cost-of-living adjustment (COLA) starting in January 2012. If your current benefit is $1,200 per month, your new social security benefit in 2012 will be $1,243 per month or $14,916/year.

Social security wage base. The maximum earnings subject to Social Security taxes will increase from $106,800 to $110,100 in 2012.

source: www.socialsecurity.gov

Steve Jobs

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Steve Jobs 1955-2011

Steve Jobs 1955-2011

 

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary. Stanford University, June 12, 2005

Reporting of Income and Deductions for Registered Domestic Partners

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Registered domestic partners (RDP) in California, Nevada, and Washington will need to split community income and deductions for federal tax purposes.

Following are instruction from IRS Publication 17.

Nevada, Washington, and California domestic partners. A registered domestic partner in Nevada, Washington, or California (or a person in California who is married to a person of the same sex) generally must report half the combined community income of the individual and his or her domestic partner (or California same-sex spouse). See Publication 555. All three of these states have both community property laws and registered domestic partners laws.

However these new regulations do not allow same-sex couples to file a joint return.

Example: Community property income includes W-2 earnings and other assets acquired since a marriage or partnership. As an example if one partner has earned income of $200,000 and the second partner stays home, then each partner will report $100,000 of W-2 earnings on their separate returns. In order to match the return to the W-2′s, the working partner will report 100% of the earned income on one line and subtract 50% of the income on a separate line. Each taxpayer must attach an explanation of the adjustment.

Effective dates. These provision are optional for CY2010 and manditory for CY2011.

references:

  • Publicaton 17. http://www.irs.gov/pub/irs-pdf/p17.pdf
  • Internal Revenue Manual http://www.irs.gov/irm/part25/irm_25-018-001.html
  • Chief Counsel Advice Memorandum (CCA) http://www.irs.gov/pub/irs-wd/1021050.pdf
  • Chief Counsel Advice Memorandum (CCA) http://www.irs.gov/pub/irs-wd/11-0063.pdf

Indexing for Superior Performance

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Passive Investments Can Provide You With Superior Performance

“When you’re underperforming the index, you go home at night and cry in your beer,” he said, adding: “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.” Bill Gross, Pimco.

In a May 2011 study, New York-based Greenwich Associates (a) found that 50% of asset-management firms interviewed and 33% of institutional funds interviewed indicated they expect to increase their allocations to ETFs by 2013.

Just why are asset-management firms and institutional funds employing ETFs?  The reasons include:

  • Use ETFs as part of their regular rebalancing procedures;
  • Employ ETFs for more strategic purposes, such as hedging;
  • Use ETFs as a liquidity sleeve in their portfolios; and
  • Save in fees.

If the smart money is using ETFs shouldn’t you?

Yes.  I think that you should definely use ETFs.  The reasons are many:

    • Many of us work full time and we don’t have time to research individual stocks.
    • Few professionals are able to beat the market indexes over multiple market cycles.
    • Fees for ETFs are significantly lower than actively managed stock funds.
    • Investment in certain ETF (e.g. SPY) exposose the investors to market risk with minimal stock risk.
    • Easier to achieve diversification, an important rule to investing.  Index-based funds tend to have many more individual securities in the fund.
    • Easier to protect our equity investments by use of puts or selling limited holdings.
    • Provides liquidity.
    • Are more tax-efficient that active funds due to their lower turnover ratios.
TakeawaysInvestments in ETFs can provide you with superior investment results.

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(a) http://www.greenwich.com/WMA/in_the_news/news_details/1,1637,1958,00.html?vgnvisitor=eKibl6WLopw=

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Should You Create Your Own Fixed Income Annuities?

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“The wise man bridges the gap by laying out the path by means of which he can get from where he is to where he wants to go.” — j.p. morgan

Today fewer employers are offering defined benefit plans to their employees.  As an alternative retirees are purchasing annuities that would provide them with a steady stream of income into their retirement years.  Insurance companies have responded to the retiree’s needs with various annuity products.  In recent years annuities continue to grow in popularity.  According to LIMRA, the Windsor, CT-based financial services research firm, the sale of all annuity products reached $122.4 billion for the six months through 6/30/2011, an increase of 13% (a).

What are types of annuity?

Annuities can be segregated into variable annuities and fixed annuities.  With fixed annuities the investors are offered a lower return as the insurance companies assume the investment risk.  With variable annuities the investors assume the risk an can invest in a variety of investments with the expectation of achieving superior returns.

Fixed annuities provide guaranteed regular payments to the policyholder over the term of the contract.  These contracts can either start immediately or deferred to a future date.  Retirees are using annuity payouts to supplement Social Security and cover basic expenses.

Advantages and disadvantages?

With a deferred annuity the investor lose control of his assets once he hands over the money to the insurance company.  Should the investor change his mind there could be substantial surrender charges.

With an immediate annuity the investor give up control of his money.  Most immediate annuity provide the investor with income for life.  Once the investor dies, nothing is left to the heirs.

There are immediate annuities that can provide income to heirs.  Such policies are more expensive resulting in a smaller income to the investor during his lifetime.

Create your own Fixed Annuities.

To save on high commission fees, you can create your own fixed annuities.

In the charts below are example computations using an initial investment of $100,000.  I used the 10 year Treasurys for investment in the fixed income portion.  This instrument currently pays an annual yield of 2.5% (b).  I use the SPY ETF to mimic investment in the S&P 500.

In exhibit A, I allocated $79,250 to 10 year Treasurys with the balance going to the SPY ETF.  Should the market declines 13% per year (twice the gain of 6.7%), the investor have protected his initial investment after 5 years.  Should the market stay flat the investor’s $100k investment grows by 10.4% to $110,414.  Should the market increase by 6.7% per year (c) the investor’s $100k investment grows by 18.4% to $118,361.  In the three scenarios, the Treasurys provide a guaranteed return.  And you, the investor, maintains the assets, not the insurance company,

In exhibit B, I show a 100% allocation to 10 year Treasurys.  If the investor can achieve a rate of 2.63% for the 20 year investment period, he should be able to withdrawal $6,414 per year over twenty years.

Should you buy a fixed income annuity or should you create your own fixed annuity?  Call us at 415.967.EDGE or e-mail us at paulsid@financialedge.net today and let us crunch out the answer for you.

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References:
(a) http://www.financial-planning.com/news/variable-annuity-sales-surge-second-quarter-2674713-1.html?portal=annuities&id=2674713&sponsor_info=1238
(b) http://www.bankrate.com/rates/interest-rates/10-year-treasury-bill.aspx
(c) http://seekingalpha.com/article/270171-jeremy-siegel-finds-stocks-currently-fair-to-undervalued-is-he-right