Category Archives: Finance

Bank Services Comparison Shop For The Right Financial Institution

16A critical part of good money management is matching the right bank services to your requirements. Depository institutions include commercial banks, savings and loans and credit unions. These institutions are regulated by state and federal agencies.

For example, the Federal Deposit Insurance Corporation (FDIC) insures federally chartered commercial banks and savings and loans against loss. Depositors are insured up to $250,000 per depositor, per insured bank, for each account ownership category.

Commercial banks provide a full range of bank services, including checking and savings accounts, loans, credit cards, investments, financial counseling and more. Selecting a single financial institution for all your financial needs may provide some advantages as you may gain access to a more complete menu of services that way.

Checking and Savings Accounts. Common bank services provided by depository institutions include checking and savings accounts. A checking account uses paper or electronic checks plus debit card transactions to withdraw money you deposit in your account to pay for purchases. Checking accounts can be either interest or non-interest bearing accounts.

Savings accounts are interest bearing accounts. You deposit funds into savings with the objective of earning interest on your balance. Typically, savings account balances are held for longer periods of time. Unlike checking accounts, the funds in savings remain deposited for future purposes.

Interest Earning Accounts. Full-service commercial banks provide multiple investment options for you to earn interest on deposits. These may include the following:

Certificates of Deposit (CDs) represent an insured interest earning savings instrument with restricted access to the funds. The terms for CDs will vary by product and institution.A Money Market account generally offers higher interest rates than a savings account. In addition, some Money Market accounts provide limited check writing privileges.

Interest Bearing Accounts. Popular bank services offered by financial institutions are credit cards and loans:

Credit Cards allow you to make a purchase now and repay the charged amount later. If you pay the entire balance before the grace period defined in the credit card agreement ends, you won’t be required to pay interest on the balance. However, if you pay any portion of the balance after the grace period ends, you will pay interest on the remaining balance per your agreement terms.Loans are important bank services that provide a way for you to borrow money for large purchases such as cars, homes and other needs such as home improvements. You pay back the money you borrow over time, such as monthly, with interest. The payment schedule, interest rate and other terms of the loan will be spelled out in your loan documents.

Additional Bank Services. In addition to common bank services such as checking and savings accounts, CDs, money market accounts, credit cards and loans, full service financial institutions may offer a variety of additional services. These bank services may include:

Safe-Deposit Boxes for securing valuable and important personal items.Financial counseling to help you make good money management decisions. Some larger banks offer a wealth of information and guidance through in-person financial advisors, comprehensive websites, online resources and other tools.

When selecting a financial institution, you must keep in mind your personal situation and requirements and how each set of bank services addresses those needs. It’s important to compare each bank’s services and fees and then select the best match for your money management style and goals.

How to Stash Your Business Cash Offshore

44Offshore companies around the world are stashing cash offshore. The biggest players in the UK and US have negotiated loopholes in their respective tax codes and are taking full advantage of them. Here are the numbers and how you can join the party.

Tech leads the way in the US while banking is the tax master in the UK. Eight US tech companies increased their offshore cash by $69 billion in 2014 alone. The 20 largest UK companies have over 1,000 offshore corporations in tax havens and moved $200 billion abroad last year.

Microsoft, Apple, Google and 5 others now account for more than one fifth of the $2.1 trillion legally held tax deferred by American companies in offshore structures. Offshore tax planning, and the cash companies hold abroad, increased by 8% in 2014 and 11.5% in 2013. Microsoft has tripled its holdings since 2010.

Making money offshore is relatively easy for a tech company. If your profits can be linked to intellectual property, you to can play the offshore game.

If you transfer a patent offshore, you can accrue income into an offshore entity.  All you need is a patent that generates significant cash and a lawyer to build a compliant structure.

Corporations that rely on intellectual property – trademarks, logos or patents – have an advantage over the rest of us. However, if you can move your sales staff, call center, or other division offshore, then you to can tax plan around Uncle Sam and HM Revenue.

Let’s say you sell a product for $100. If $40 of that price can be allocated to work done abroad, then $40 of the sale price may qualify to be held offshore. Of course, transfer pricing is a complex matter and you should review your situation with an expert.

If this sounds like it’s meant for multinational corporations, you’re right. Most of us don’t have significant intellectual property nor a sales division in a low tax country. What can we do?

The American small business owner needs to move herself and her business offshore to take advantage of these international tax loopholes. More specifically, you need to move you and your business outside of the US and qualify for the Foreign Earned Income Exclusion.

You can qualify for the Exclusion by living abroad for 330 out of 365 days or becoming a resident of a foreign country. Then and only then can you 1) draw a salary from your foreign corporation of up to $100,800 per person (so, $201,600 for a husband and wife), and 2) retain earnings above this amount in your corporation. Note I’m speaking here of active business income. This does not apply to passive or investment income.

For the UK citizen, it’s a bit easier. UK taxes are based on domicile and not citizenship. If you are living outside of the UK for more than 6 months, you can typically shelter your income from UK tax until you bring it home. This is called paying tax on a “remittance basis.”

Let me close with suggestions for high net worth Americans. What if you are a small business owner earning well over the $100,800 FEIE amount? What if you take home $500,000 to $1 million in salary? Or your income is from passive investments rather than an active business? Going offshore won’t make much of a dent.

High salaried employees and passive investors should consider moving to Puerto Rico. This US territory’s unique tax rules allow you to cut your US tax rate to 4% on ordinary income and zero on capital gains. I’ll write more on the benefits of PR in a future posts… if you just can’t wait, check out PR Tax Breaks for Corporations and PR Tax Rules for Investors.

Protect Your Valuables! Safe Spots To Store Your Stash

Depending on your living situation, you might need a safe place to store your stash. Maybe you’re still living with your parents. Perhaps you have roommates who like to poach off of you. Maybe your spouse or significant other is not accepting of your canna-habit. Where do you hide it though? These are the most unobtrusive and creative places I’ve found to store your stash.

In An Old Computer

If you’re a techie stoner, you probably have an old Computer lying around. Unscrew the case and store your stash in there. Screw it back up and no one will think to check in there, especially if it’s sealed tight! Don’t do this with a computer that you’re currently using.

Inside A Book

Surely you’ve seen this trick in movies and TV shows. Take a book that you don’t care about, (and most importantly that no one else will care about) hollow it out, and store your stash in there. Pick a book that you think no one in your household would want to read. This is one case where Sarah Palin’s biography would actually be useful.

The Pocket Of A Jacket You Never Wear

This hiding spot worked for me for years. After making sure that your stash is properly sealed, or double bagged, stick it in the pocket of a jacket that you have in the back of your closet. If you have a jacket with a secret pocket or a hole in the lining, all the better. Make sure this jacket is buried in your closet, not quite at the end of the rack, but close to it.

An Old Stick Of Deodorant

When you have a stick of deodorant that is at the point where the stick falls out, this makes a great place to hide your stash. It’s inconspicuous, and the deodorant helps cover up the dank smell. Just don’t throw it out on accident.

A Flower Pot

If you don’t mind getting a little dirt under your fingernails, hiding your stash in a flower pot is a great idea. Make sure that you’re not using a pot with a growing plant, otherwise you’ll kill it when you try to dig up your stash. If you’re doing this, you should absolutely have your stash sealed tight in tupperware or multiple bags, otherwise you’ll have moldy cannabis.

Coffee Can

Coffee beans are very aromatic and coffee cans are quite large. This makes a coffee can a pretty good place to hide your stash. Make sure that you’re hiding it at the bottom of the can, and that it’s tightly sealed of course. Monitor the coffee can and move your stash to a new place when the can gets below halfway. This is a better stash place if you’re the one who controls the coffee, and don’t live with parents who are avid coffee drinkers.

Pair Of Shoes

Preferably you should use a pair of boots. This is an excellent hiding spot if you’re a person who owns a lot of shoes, that are buried in the back of your closet. The advantage to using boots is that they are larger and deeper. You can get away with using a pair of Vans or Converse too. I do not recommend using high heels or open toed shoes.

Empty Pill Bottle

If you live in a household that takes a lot of vitamins and have a shelf in the closet devoted entirely to them, then this is the hiding place for you. Take an empty pill bottle of a vitamin or supplement that you know is rarely used and hide your stash in there. I’ve known people that have hid their pot this way for years, and it’s never been found. If you are the only female in a household you can hide your stash in your prenatal vitamins and no one will ever find it.

Inside An Instrument/ Guitar Amp

If you’re a musician, or you just bought a guitar and never picked it up, you can store your stash inside the guitar. If you have an amp you can try unscrewing the back and hiding it inside the amp. Remember to remove it before you use your amp. Honestly, you can store weed in pretty much any instrument, except for a trumpet. I used to hide bags rolled up neatly inside my flute. No one ever found it, as far as I know.

There’s lots of safe places that you can store your stash, especially if you’re one of the more creative types. One of my friends used to hide nugs all around the house, so everyday was like a cannabis easter egg hunt. I wouldn’t recommend doing that if you live with your parents though. Most important thing is: don’t forget where you hid it!

CD just one way protect savings

43I’ve discussed the Certificate of Deposit Account Registry Service, or CDARS, in past columns, but wasn’t aware of the competing product, Money Market Account Xtra, or MMAXs. Both programs provide FDIC-insured coverage many times over the standard insurance limit without requiring the depositor to establish accounts with more than one bank.

The difference in yields between a money market account and a certificate of deposit can be substantial, especially if you’re looking at longer-term maturities in the CD. The Bankrate feature “6 ways to insure excess deposits” explains these programs and adds several more into the mix. Public funds typically require collateralized deposits and you could discuss that approach with a banker as well.

Protecting a substantial sum of money depends on more than just safety of principal. You also need to consider protecting the purchasing power of that money over time. Inflation seems relatively benign at present, but inflation erodes the purchasing power of your investments over time.

Anyone with a substantial sum of money to protect should spend some of it hiring a professional financial adviser. You may object to an asset under management, or AUM, approach where you pay a percentage of assets each year to the adviser. But there are other compensation models, including having an adviser on retainer.

If you don’t care for that advice and want to invest on a do-it-yourself basis, I think you should consider Treasury Inflation-Protected Securities, or TIPS, as part of your portfolio. It’s hard to say how much you should invest this way, since I don’t know more about you and your finances. You can invest in TIPS through the TreasuryDirect program.

The safest place to stash your retirement savings

41Sure, there are plenty of places you can put your retirement nest egg to protect it from a possible setback in the stock market. You could move it into cash equivalents such as a money market fund, an FDIC-insured savings account or CDs. Some investors have even been flocking to gold lately as a refuge for uncertain times.

But the question is should you?

Cash equivalents are very secure and stable, but they yield virtually nothing these days. So you’re paying for security by accepting very low rates of return that may make it difficult for you to build an adequate nest egg that can support you in retirement.

And while gold has shown that it can hold up well, or even thrive, when stocks run into trouble, it’s not as if gold is a model of stability that rarely drops in value. On the contrary, gold can be even more volatile than stocks and is given to steep periodic losses, witness the fact that, after soaring to nearly $1,900 an ounce back in 2011 amid concerns about European debt levels, gold has since declined to just over $1,200 an ounce, a slide of about 35%.

Fact is, while moving your retirement stash to one of the alternatives mentioned above may be “safe” in the sense that it can shield you from a market downturn, it leaves you vulnerable to other risks. So in trying to protect yourself, you may actually be doing the opposite.

So what do I recommend instead?

Calculator: Are you behind on retirement saving?

Basically, I suggest you try to achieve a balance between the security you seek from short-term downdrafts in the stock market and the long-term returns you need to achieve goals like accumulating enough savings to support you through what can be a long retirement. To my mind at least, the most sensible way to do that is by investing your savings in a low-cost mix of stocks and bonds that’s conservative enough to afford reasonable protection from market turmoil but aggressive enough to generate the long-term returns you’ll need to achieve your financial goals.

The appropriate mix of stocks and bonds can vary from person to person for any number of reasons, including age, the size of your nest egg, how much you have in the way of other resources to fall back on and how you react to investment losses. But the best way to start figuring out what blend of stocks and bonds makes sense for you is to get a sense of how much risk you can comfortably take on, which you can do by completing a risk tolerance-asset allocation questionnaire like the one Vanguard offers free online. You’ll receive a suggested mix of stocks and bonds, as well as access to stats showing how that mix and others more conservative and aggressive have performed in both good and bad markets.

While those stats can be helpful, I recommend you go a step further and also estimate how the suggested portfolio would have performed in a severe bear market like the one that began in late 2007 and continued through early 2009, when stocks lost nearly 60% of their value and bonds gained almost 8%.

Such an exercise can give you a better feel for how you might react should you have to deal with a similar market meltdown. For example, a blend of 70% stocks and 30% bonds would have lost roughly 35% from the peak of the last bull market to the trough of the bear (assuming no rebalancing). If seeing the value of your savings decline by that amount would have had you bailing out of stocks in a panic, then you might want to rein in your allocation to stocks a bit.

Asset allocation: Fix my mix

That said, you don’t want to lean so far toward security that you end up with anemic returns that make it harder to achieve your goals. So when you think you may have a stocks-bonds mix that’s right for you, test it again by plugging it into a good retirement income calculator. That should tell you whether your investing strategy, combined with how much you’re saving (or spending, if you’re already retired) will keep you on track toward a secure retirement.

Once you’ve arrived at a suitable portfolio, don’t mess with it, except to rebalance periodically, do the occasional portfolio check-up and perhaps shift more toward bonds as you near and enter retirement.

Going through the exercise I’ve described above won’t completely insulate you from stock market setbacks. But that’s not the aim. Rather, the goal is to provide enough protection to allow you to ride out the inevitable stock market slumps and then participate in the recoveries, which is a more effective strategy than trying to anticipate the market’s ups and downs.

So by all means keep some of your portfolio in cash equivalents — enough to cover at least three months’ worth of expenses during your career and anywhere from one to three years’ worth of spending in retirement. But aside from such an emergency cushion or spending reserve, the rest of your savings should be invested in a way that gives you the best shot