What Will You Risk?

By | LFS Express, Portfolio Management

Investing can be risky business, especially if you haven’t taken your own risk tolerance into account.

Risk tolerance and risk willingness are frequently identified as crucial factors in deciding what to invest in and determining your asset allocation percentages. Even two investors with identical financial situations may have drastically differing attitudes and experiences that demand two drastically different investment portfolios to accommodate for risk tolerance. Learn more below about risk capacity versus risk willingness and how you can begin determining your own risk tolerance.

Risk Capacity

Risk tolerance is comprised of two parts: risk capacity and risk willingness. Risk capacity stems primarily from why you invest and when you will need the money; in other words, what is your capacity for taking on investment risk. For example, an investor close to retirement may be relying on her IRA in a few years and should not expose herself to high volatility. On the other hand, a young investor’s IRA may have an additional 25 years to grow, and therefore has the capacity to stomach more risk along the way.

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The Tax Cut Fight Has Only Just Begun

By | Building Financial Independence, News, Portfolio Management

Video Transcription

On Wednesday this week, the administration released a nine-page framework for the much anticipated tax cut.  As I have been saying throughout the year, tax cuts are the most credible and legitimate wildcard for the market in 2017. How it ends will have bullish or bearish consequences to the market.  From a bullish standpoint, a substantial tax cut may help push the U.S. equity market further up because that will increase expected 2018 Earnings per Share. From a bearish standpoint, because there is a general expectation that there will be some kind of tax cut passing this year (especially regarding foreign profit repatriation), if tax cut fails, then we would be sitting on a market valuation at 18 times next year’s earnings with no identifiable future growth catalyst in an interest rate hike environment, and that may present a headwind for the markets. Read More

Keeping Your Portfolio in Balance

By | LFS Express, Portfolio Management

Picking asset classes is only half the battle. The other half is portfolio rebalancing.

Your personal financial situation is a collection of important factors, such as your willingness and capacity to take on risk, your goals, and your age, all of which aligns you to a recommended portfolio that can meet your unique requirements. We’ve previously covered how choosing the right asset classes (e.g. US Technology Sector, International Asia Pacific, Convertible Bonds) is essential; however, your work doesn’t stop at deciding what to invest in, but should also extend to deliberate decisions on how much of each asset class to hold. This is where asset allocation and portfolio rebalancing come in. Read More

Tactical Asset Allocation

By | Building Financial Independence, LFS Express, Portfolio Management
Understanding asset allocation is an important part of investing your money. With asset allocation, you can be sure that your portfolio not only holds the asset classes appropriate for the current market environment, but also that they’re appropriately proportioned for your unique financial situation. Tactical Asset Allocation describes the active management of the asset classes in your portfolio in response to changing market conditions. Read More

Press Release: Financial Literacy Education on the Rise with CalCPA State Committee

By | News | No Comments

John Lau of LFS Asset Management appointed to CalCPA’s State Committee on Financial Literacy

BURLINGAME, California–June 7, 2017–John Lau, author and advisor, has been appointed as the Chapter Co-Chair for California Society of CPAs State Financial Literacy Committee. CalCPA Institute is now collaborating with Financial Aptitude Training (FiAT, www.fiatprogram.org), a local non-profit organization, in bringing financial literacy to local youth with the Financial Literacy for Youth (FLY) Summer Camp Program.

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Risk Management Is More Crucial Now Than Ever

By | Portfolio Management

“Rule No. 1 in investing is not to lose any money; Rule No. 2 is Do Not Forget Rule No. 1.” -Warren Buffett

The U.S. equity market has been rallying since Donald Trump won the election in November, 2016. Much of the rally has been based on hope and expectations of a pro-growth environment, including corporate tax reform, infrastructure spending, and deregulation. To a large extent, the effects of these expectations have been priced in to the current market valuation; and the political v. policy gap error risk is rapidly becoming a significant factor, weighing in on the sustainability of the market. Despite chaos in the first weeks of the new administration (travel ban protests, resignation of the national security advisor, judicial ruling against an executive order, diminishing likelihood of repealing and replacing the Affordable Care Act, etc.,), the U.S. equity market continues to march forward onto positive territory, due primarily to continuing positive economic data (corporate earnings, consumer spending, housing starts, etc.,) But the market is growing wearisome, and [it] is very much looking forward to actual pro-growth policies from the administration. Absent any real pro-growth policies (within the first 100 days of the new presidency), the equity market may begin to correct. With all the mid-night tweeting and war waging against the media, the president’s efforts seem to have diverted from real policy reforms and governing; and as the political/policy gap continues to widen, so does it heighten the risk of a market correction. Other market headwinds may come from more hawkish monetary policy (Fed hiking interest rates more frequently than expected), and possible trade wars with China and other countries.

Two of the most effective risk management strategies are Position Sizing and stop losses. Investment is a game of discipline and strategies. Like all games, it has rules of engagement. To win at the game, you must know what the rules are and use them to your advantage. Read More

The Twelve Days of Christmas: Day Twelve

By | Building Financial Independence | 3 Comments

Day Twelve

Live Each Day to the Fullest – S.H. Payer

Live Each Day to the Fullest

The first time I read this poem was some thirty years ago. I don’t read many poems, but this one has stayed with me through all these years; through good times and bad, and it has been a source of inspiration and encouragement for me. I hope it will have the same effect on you as it has on me.

Merry Christmas and Happy New Year! Read More

Beware of Scams Targeting Taxpayers

By | Building Financial Independence, Tax Planning & Prep | No Comments

The IRS is warning taxpayers of a new scam using fraudulent CP2000s to solicit money from taxpayers. A CP2000 notice typically states :

The income and/or payment information we have on file doesn’t match the information you reported on your tax return. This could affect your tax return; it may cause an increase or decrease in your tax, or may not change it at all.

The fraudulent forms look convincing and show balances due that are small enough that taxpayers just might pay rather than arguing the point. However, upon closer inspection, these forms have telltale signs of fraud:

  • The instructions direct the taxpayer to make out a check to “I.R.S.” rather than to “United States Treasury”; and
  • The return address is “Austin Processing Center, P.O. Box 15264, Austin, TX 78761-5264,” which does not match the address listed on the IRS website for the Austin processing center.

What to do if you receive a CP2000 notice from the IRS?

If you receive a CP2000 notice from the IRS, it is best to contact your tax professional so that the correspondence can be verified.

Good luck.

The Twelve Days of Christmas: Day Eleven

By | Building Financial Independence, Tax Planning & Prep | No Comments

Day Eleven

“We have what it takes to take what you have.”

–Suggested IRS Motto

The best time of the year to start tax planning is at the beginning of a new year when you will get the benefit of the whole year to implement the plan.

Tax planning is more than accumulating deductions. While deductions do help, but they are not the only game in town. You can save money on taxes even if you do not itemize.

Some of the more frequently overlooked planning attributes include: Read More

The Twelve Days of Christmas: Day Ten

By | Building Financial Independence | No Comments

Day Ten

Never depend on single income. Make investment to create a second source.

Financial tip: Turning an Old Annuity into a Family Fortune

Many people purchase annuities for their perceived safety, simplicity, and tax deferral. Yet, annuity owners risk losing much of their account value when their beneficiaries cash in the annuities upon their death.

Let’s take a look at how this can happen: Mary, age 55, purchased a fixed annuity for $50,000. Over the years the interest accumulated nicely, and it has now doubled to $100,000. Mary is very happy with her annuity. Say all Mary wanted is to pass a nice estate to her beneficiary when she dies. Since an annuity is an income in respect of a decedent item, the deferred income is all taxable to the beneficiary upon withdrawal at Mary’s death. Assuming a combined Federal and state income tax rate of 30%, the total tax on her $100,000 annuity account could be around $15,000 (30% x $50,000 deferred income), netting $85,000 to her beneficiary. Read More