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SHOULD YOU BE GETTING READY TO DUMP MONEY INTO YOUR RETIREMENT PLAN FOR A BIG TAX DEDUCTION?

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John Jamieson

As we speed toward the end of the calendar and financial year thoughts turn to how much we may, or may not, owe in taxes in the first quarter of 2014. Nobody likes to pay taxes so it is at this time of year you are searching for ways to reduce that burden.

John Jamieson

John Jamieson

One of several ways people have used to lower their taxes is to fund their 401k, IRA, or any other type of qualified plan with as much money as they can scrape together. The reasoning behind this is usually twofold:

  1. We need to save for our later years and retirement
  2. We think we are beating the tax man by qualifying for a last minute income tax deduction (this is in the case of traditional retirement accounts and not Roth accounts)

The first reason is good reason to put money away for retirement but the second reason is not really valid when you look at the entire picture. To begin with a “tax deduction” taken for contributions made to a retirement account is really not a tax deduction but rather a “tax deferral”. This means you are agreeing not to pay the tax now but will pay later when you take the money out of the account.

A true tax deduction is money that is written off of your taxes without having to pay it back at a later date. So why does everyone get so excited about the tax benefits of contributing to a retirement account? We are a people who only look very close into the future and see the immediate result and are unaware of the long term consequences of the action.

The reasoning for the deduction is the theory that because we did not pay tax on the money we have more of it available to put into the account and the more money you will have when you get older. This could be true depending on what you invested the money in when it was put into the account. The vast majority invest the funds in mutual funds which get invested into the stock market. So we are told that if you “average” 8% over the next 20 years you will have more money in the account than if you had to pay tax on the money today. The assumption is that 8% is compound growth when in fact the stock market goes up and down and does not truly compound. It is a matter of timing and trading in the market and very little to do with actual investing any longer.

With that in mind the extra money you put into the market is available to grow more or to LOSE more depending on what the market does after you put it in the fund or the individual stock. Also when you do go to take the money out you will owe tax on the entire account balance both contributions and any gains from growth. We are told that the income rates will be lower for us later in life because we will be making less money. This is not a fact but a huge assumption. Do you think tax rates are going higher or lower in the next 10 or 20 years? If you answered higher as most do then ask yourself this question: “why am I agreeing to defer tax from today until tomorrow on a larger amount of money and at unknown probably higher tax rate”?

The fact is investing or saving just for alleged tax advantages is never a good bet. You should place money only where you think it will be an asset to you by either growing or stopping one of your 4 massive wealth drains of Income taxes, interest and fees paid to banks, market losses, and depreciation of large assets such as cars, boats, and equipment. If there are tax advantages then all the better but the main reason you do something should never just be about taxes.

Many people elect to reduce their taxes by aggressive legal tax structures and whatever tax they do have to pay, they pay today and put it away in a tax free vehicle where the government has very little say in how it is used in the future. This means not putting it in qualified plans of any kind.

By John Jamieson

John Jamieson is the owner of Perpetual Wealth Systems a total wealth strategy company showing investors how to stop their 4 wealth drains while funding their 5 circles of wealth. He is a sought after national speaker and the author of the #1 bestseller “The Perpetual Wealth System” available at www.theperpetualwealthsystem.com.

Perpetual Wealth Systems is a vanguard wealth strategy company that specializes in showing people and businesses non-traditional ways to grow and protect wealth. They are based out of Clinton Township, Michigan but have clients in dozens of states and Canada.

Perpetual Wealth Systems services a unique sector of the investment and insurance worlds. Their best clients are people not happy with the traditional financial vehicles and want to explore the possibility of reallocation of assets into guaranteed vehicles as well as non guaranteed programs. They help people invest in real estate, private loans, private notes, tax deeds as well as help people and businesses set up their own private banks and private pension systems.
The company believes in team approach to wealth creation and wealth preservation. They bring in experts from many different financial and business arenas to help service their clients many different needs.

Investing

What is the procedure for proving a missing or lost Will?

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Intermediaries will be key to Investment Houses navigating the Covid19 crisis

By Alexa Payet, Partner at Bolt Burdon and listed specialist in the Certainty

Contentious Probate Hub & Area

Initial steps

When an individual dies it is necessary to search their paperwork to establish whether they made a Will and gather information regarding their estate. This is important because the personal representatives of the estate have a legal duty to distribute the estate correctly and could be held financially responsible for any mistakes made through any breach of duty.

Where a Will cannot be found but is believed to exist there are a number of steps that can be taken to help confirm its existence, including (but not limited to) the following:

  • making enquiries of the deceased’s family and friends;
  • making enquiries with the deceased’s professional advisors;
  • instructing The National Will Register to undertake a Certainty Will Search.

Presumption of revocation

Where the original Will is known to have been in the testator’s possession before their death and cannot be located afterwards, there is a rebuttable presumption that the Will was destroyed by the testator with the intention of revoking it. If an order for the proof of a copy is to be obtained then this presumption must be rebutted.

Procedure for proving a copy Will

The procedure for proving a copy Will is set out in Rule 54 of the Non-Contentious Probate Rules 1987 (‘NCPR’).

The application is made to the Probate Registry at which the application for the grant will be made and the order can be made by a district judge or registrar.

The application must be supported by evidence in the form of an affidavit (although during the global pandemic the rules have been amended by the Non-Contentious Probate (Amendment) Rules 2020, SI 2020/1059, to provide for the use of witness statements as an alternative to affidavits).

The evidence must set out the grounds of the application and any available evidence that the applicant can adduce as to the Will’s existence after the death of the testator or, where there is no such evidence, the facts on which the applicant relies to rebut the presumption that the Will was destroyed by the testator during his/her life.

The applicant must ensure that the Court has the best available evidence of what happened to the testator’s Will in order that effect may be given to his/her testamentary wishes.

It is important to understand that the applicant does not need to demonstrate that the Will has been lost (it is the fact of its loss which gives rise to the presumption of revocation). Instead, the applicant must establish, by evidence, that the Will was not in fact revoked.

What is a Certainty Will Search and why is it necessary?

A Certainty Will Search searches for Wills that have been registered on The National Will Register (circa 8.7 million Will registrations in the system) and for Wills that have not yet been registered in geographically targeted areas where the deceased used to live and/or work. A Certainty Will Search is extremely important as it will be necessary to notify the probate registry of any persons who would be prejudiced by the grant if the copy Will is proved. If no such person exists then the registrar is more likely to grant the application. Alternatively, if such a person does exist then you should seek to obtain their written consent to the application. The written consents can then be lodged with (or following) your application.

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Investing

Oil prices rise as investors look to higher demand seen in second half

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Oil prices rise as investors look to higher demand seen in second half 1

By Shadia Nasralla

LONDON (Reuters) – Oil prices climbed on Tuesday as optimism that government stimulus will eventually lift global economic growth and oil demand trumped concerns that renewed COVID-19 pandemic lockdowns globally are cooling fuel consumption.

Brent crude futures for March rose 72 cents to $55.47 a barrel by 1152 GMT after slipping 35 cents in the previous session.

“The perception that any retracement will be quick as confidence in economic and oil demand recovery is unlikely to fade away,” said PVM analysts in a note.

U.S. West Texas Intermediate crude was at $52.65 a barrel, up 29 cents. There was no settlement on Monday as U.S. markets were closed for a public holiday. Front-month February WTI futures expire on Wednesday.

Investors are upbeat about demand in China, the world’s top crude oil importer, after data released on Monday showed its refinery output rose 3% to a new record in 2020.

China also avoided an economic contraction last year.

Investors are watching out for U.S. oil inventory data from the industry association API, due on Wednesday, the same day U.S. President-elect Biden’s inauguration speech will likely give details on the country’s $1.9 trillion aid package.

The International Energy Agency cut its outlook for oil demand in 2021, but pointed to a recovery in demand in the second half of the year to an annual average of 96.6 million barrels per day.

“Border closures, social distancing measures and shutdowns…will continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year,” it said in its monthly report.

(Additional reporting by Florence Tan, editing by Louise Heavens)

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Investing

Can Thematic Investing provide investors with growth opportunities in uncertain times?

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The impact of COVID-19 on the investment market

New whitepaper from CAMRADATA explores

CAMRADATA’s latest whitepaper on Thematic Investing, considers the role this type of investing can play in asset management and explores trends that can permeate society and traverse sectors. The whitepaper includes insights from guests who attended a virtual roundtable on Thematic Investing hosted by CAMRADATA in November, including representatives from CPR Asset Management, Sarasin & Partners, Impact Investing Institute, PwC, Quilter Cheviot, Scottish Widows and Stonehage Fleming.

Sean Thompson, Managing Director, CAMRADATA said, “In these seminal times, thematic investing has the potential to shape how the future unfolds. Yet running a successful thematic fund is no easy feat – it is a bit like navigating unchartered waters trying to identify the trends and the long-term opportunities.

“Trends such as AI and biotechnology are still in their relative early days, for example, and global economies are undergoing dramatic changes. But mapping out certain trends, identifying potential sustainable returns through a unifying thread that spans multiple sectors, could help future-proof investments. “Our roundtable guests considered current key themes, which themes worked well, and which have not and how thematic investors could identify trends with the potential to offer future growth.”

The guests named themes they currently like which included artificial intelligence, China, climate change, clean energy, automation, evolving consumption, ageing, digitalisation, water, waste management, biodiversity, and board diversity.

After discussing themes that have worked or not, the guests looked at total allocation to themed funds, and whether clients might be blinded by themes to the overall risk exposure in their portfolios.

Key takeaway points were:

  • Themes have a habit of coming and going. One guest recognised that automation and robotics, for example, were cyclical, which means that investors will have to think carefully about entry-points.
  • It was agreed that the commodities ‘super cycle’ of the 2000s came about with the economic development of China. Many commodities-based products found their way into mainstream investing, but this is unlikely to happen again.
  • One guest was surprised by some of the themes that interested their customers; with their research showing that Board Diversity was almost the lowest-ranking concern among the ESG choices they listed.
  • There was correlation between environmental impact and social benefits to investing. The theme that concerns the Impact Investing Institute, which is less than two years old, is improved measurement of such relationships.
  • In terms of successful themes, one clear winner due to COVID had been digitalisation.
  • One theme that has not done so well is the Ageing theme focused on older people travelling and enjoying experiences abroad later in life.
  • One guest said their firm used themes for ideas generation, not as a shortcut for portfolio construction. They said themes lead to good ideas, but they then spend at least three months researching a stock, so that the best themes are represented by the best investments.
  • The final point was that there are sensitivities for any global investor in allocating to themes, even the biggest one of all, Climate Change.
  • But on a positive note, one guest added if all stakeholders can resolve their differences on definitions such as impact and ethical investing, then more capital will be readily transferred into opportunities.

The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:

  • CPR Asset Management: ‘Central Banks: leading the path towards Impact Investing’
  • Sarasin & Partners: ‘Theme or fad? How to invest for the long term’

To download the Thematic Investing whitepaper, click here

For more information on CAMRADATA visit www.camradata.com

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