An Introduction

Hi. Welcome to BourGroup and my blog. Phil

Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.

I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.

"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.

Tuesday, June 14, 2016

Talk of a Bear Market?

Many times investors feel that they know what is going to happen next in the markets or the economy and believe that the advisor just does not understand the seriousness of the current situation.

When the markets dived in February 2016 many were sure that was the beginning of a bear market but then the markets recovered rather quickly from that downturn.

A bear market can be defined as a decline of 20% or more.

How long do they last? How often do they occur? One symptom is that it is a time when more investors are pessimistic about the markets.

Advisors (most) do understand the seriousness of the current situation and realize that it has occurred many times over the history of the stock market. They also realize that it is unpredictable.

The key I believe is to have enough in safer investments (cash and cash equivalents) so that you can hang on for the inevitable down market and eventual recovery.

"Years of safety" has been a term used by many planners to prepare for those down periods and one that I subscribe to also. Especially, when in or near retirement this period can be calculated as years - not months. 

How many? Depending on your situation it could be 3, 5, 7 or more years.

If the markets perform like they did in 2007-2009, will share prices go down and never recover their losses? Never? That period lasted about two years and the recovery took another three to four years but, indeed, did recover.

Wednesday, February 11, 2015

Proposed Tax Changes

I have not written in almost a year (February 2014 was my last post). There is always much to write about though and proposed tax changes are high on the list.

I recall reading Larry Burkett's book back in 1991 titled "The Coming Economic Earthquake" and remembering that he said that tax-deferred accounts only hold promises and not guarantees.

In President Obama's State of the Union address, he touched upon a few tax proposals but in his proposed budget there are even more changes than what he highlighted in his speech.

They are just that, though, "proposed" and unlikely to ever make it into law.

But as Michael Kitces recently writes in his blog "...nonetheless, the proposals provide important insight into what the White House considers..."

Just a few examples of proposals over the last few years, and recently, may give you pause:

(1) No RMD's (Required Minimum Distributions at age 70 and 1/2) if all of your IRA balances aggregated together are under $100,000 or you annuitize a portion of your IRA's to get you under the $100,000 limit. That sounds good.

(2) Eliminating the "back-door" ROTH. This is where you contribute to a Traditional IRA non-deductible contributions up to the limit ($5,500 or $6,500 for 2015 depending on age) and then convert those funds, after a reasonable time, to a ROTH IRA. For those whose income exceeds the ROTH contribution income limits (starting the phase-out at $183,000 of Adjusted Gross Income for 2015) this has been a way to get money into a ROTH. The proposal limits conversions to "pre-tax" dollars only, thereby eliminating any "after-tax" dollars from conversions.

(3) Require minimum distributions (RMDs) from ROTH IRAs. Though still not taxed, under current law, no RMDs are required from ROTH IRAs. They can continue to grow tax-deferred and tax-free with no limits until death and then the beneficiaries are required to take RMDS from inherited ROTH IRAs.

(4) Limit of $3.4 million that you can accumulate and hold in tax-deferred accounts.

(5) Value-add tax or consumption tax (which would, in effect, make ROTH IRAs taxable when withdrawn and spent on something).

That is just a sampling but it holds true that tax-deferral and tax-free accounts are promises from today's government and not necessarily true for the future. Diversify accounts by tax location.

Friday, February 28, 2014

Retirement Withdrawal Strategy

Converting Traditional IRA's and 401k's to a ROTH IRA may make sense from a perspective that is often not considered.

If married, there is a likelihood that one spouse may not survive the other leaving the survivor with a "single status" tax bracket someday. Since the single tax bracket rate is higher, there is a possibility that the survivor will be paying more in taxes - even if on less income.

It may also mean that ROTH conversions that would have been advantageous when married no longer make sense. Staying in the 15% tax bracket if married is easier than trying to stay in the 15% bracket as a single filer.

Thursday, February 27, 2014


Allan S. Roth writes in the February 2014 magazine that "...a common myth is that the ROTH ... is better than the traditional [IRA] account if the assets are held for a certain number of years. This is false. The only things that matter are the marginal tax brackets in the year of the conversion and the year of withdrawal. If the marginal tax bracket ends up higher upon withdrawal, the conversion will have been beneficial..."

This is just  a number's thing. It is true. Other ROTH advantages, though, may entice someone to do ROTH conversions and/or start a ROTH. There is the 5-year rule for starters so beginning a ROTH sooner rather than later may still make sense to get the clock ticking in your favor. Another is that ROTH's do not have required minimum distributions. And, more importantly, withdrawals never show up on your tax return because it is not taxable income. 

Even if you are in the same tax bracket when you take money out, your social security may be taxed differently if you can minimize your taxable income and that may effect your true marginal tax rate.

Of-course, any money you put into a ROTH can be taken out without penalty or taxes and so this may be a good place to consider for some portion of your emergency fund.

Wednesday, February 26, 2014

Asset Locations

Where you hold your investments (tax-deferred or taxable accounts) can make a difference. For example, stocks and stock funds held in a tax-deferred retirement account (i.e. 401k or Traditional IRA, etc.) turn a capital gain into ordinary income.

If you are in the 15% tax bracket, the current capital gains tax rate is zero. Putting money into a Traditional IR or 401k will save on taxes right away but it is only a deferral until some later date.

Another possible challenge in retirement is that required minimum distributions will push you into a higher tax bracket when this could be managed by possibly using ROTH IRA's if you qualify or a taxable account.

Another disadvantage is that those tax-deferred retirement accounts do not get a step-up in basis at death but rather are passed on to beneficiaries who then will be taxed on withdrawals in their regular income tax bracket.

Bonds and bond funds held in non-taxable accounts will not grow as fast but interest income is taxed at the same rates as ordinary income.

Tax location diversification makes sense.

Tuesday, February 25, 2014

Risk - Another Perspective

In the same article quoted in yesterday's blog (March 2010 Journal of Financial Planning by Bodie, Fullmer and Treussard), the author's stated other traps and fallacies:

"...the false notion that stocks are an effective hedge against inflation, the fallacy of time diversification of risk, and reliance on probability statistics as a measure of risk..." 

It is true that in the high-inflation periods of the 1970's and early 1980's stocks did perform poorly, but overall, with mild inflation (less than 4%), the effects are not correlated. The authors state that "...empirical studies show that stock returns are largely uncorrelated with inflation..."

Bodie (1995) shows that "...the cost of this insurance [to insure that an investment will, at least, earn the risk-free rate] increases with the time horizon...and can be replicated by purchasing a put fact increase with the length of the time horizon..."

Though the chances of experiencing declines in a portfolio increase over time, the average ending result still may be higher than just taking a non-stock approach. Never any guarantees either way.

To continue, "...probability theory has strongly influenced...economics...from its 17th century founders, Blaise Pascal and Pierre de Fermat...Pascal...reasoned that knowing the probability of an event was not enough. The consequences of the event matter, too. Thus, risk has two dimensions. One involves the probabilities of certain events. The other involves the consequences of those events..."

The consequences could be not reaching your retirement goal because of being too conservative or too aggressive. Again, either method could be true.

Monday, February 24, 2014

Target Date Funds and the Glide Path

Target date or lifestyle funds have quite different glide paths depending on the company. The glide path is how the fund moves from a 80-90% stock portion when there are still 20+ years to go to a much less aggressive stock position as the target date is reached.

As stated in a Journal of Financial Planning article by Bodie, Fullmer and Treussard (March 2010),  "...some glide paths seek only to manage TO the target date, while others go further - to manage THROUGH the target date, presumably for the rest of the investor's life..."

The stock portion of the target date fund could be in a range from 25% or less to as much as 70% or more by the time the target date arrives. The answer to which is better is impossible to answer as it depends on the individual's level of risk, income needs and other factors.

The important thing is to know how your target date or lifestyle fund is moving from aggressive to less aggressive. They mostly do but some studies have even shown that this general glide path direction may not be the right answer anyway.