Treybourne Blog

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2017 Year-End Tax Planning

With the Senate and House passing the tax bill yesterday and President Trump expected to sign the bill soon, it is virtually certain that the Tax Cuts and Jobs Act of 2017 will become law.  Over the course of the next several months we intend to delve into some of the details of the new provisions in the law but with so little time left before year-end this Communiqué will focus on a summary of new or changed provisions that apply to individuals and most importantly, some year-end planning strategies that each of us should consider.  It has been our experience that if a document is over two pages most readers will quit reading so rather than review the new law and then explain year-end planning opportunities, we are doing this backwards – first, the year-end planning recommendations and then, the explanation of the pending new law provisions!  Unfortunately, the...
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Indiana School Scholarship Tax Credit Program

Indiana Code 20-51 and Indiana Code 6-3.1-30.5 create a School Scholarship and School Scholarship Tax Credit Program. Funding for scholarships come from private, charitable donations to qualified scholarship granting organizations (SGOs). Donors (individuals or corporations) are eligible to take advantage of a 50% tax credit. While there are no limits on the size of qualifying contributions to an SGO, the entire tax credit program has a limit of $12.5 million for FY2018. This permits up $25 million in donations and scholarships for FY2018.   Individuals may also deduct the entire contribution on one’s federal tax return. Consequently, if you are the 25% Federal tax bracket, a $1000 contribution saves you $250 on your Federal return and $500 on your Indiana return, for an out-of-pocket expense of $250. This school scholarship program is very heavy on tax benefits, so I urge you to consider contributing to this scholarship program.   You might ask who...
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Investing Terms: From Alpha to Zeta (Part 2)

Nominal vs Real Interest Rate:  When you hear someone mention an “interest rate”, they are most often referring to the current market, or nominal interest rate.  Real interest rates are inflation-adjusted rates used in time-value of money calculations such as annuity or retirement calculations. Rule of 72:  The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72.  Years required to double investment = 72 ÷ compound annual interest rate Sharpe Ratio:  named after William Sharpe, winner of the 1990 Nobel Memorial Prize in Economic Sciences. Sharpe was one of the originators of the capital asset pricing model. He created the Sharpe ratio for risk-adjusted investment performance analysis, and he contributed to the development of the binomial method for the valuation of options, the gradient method for asset allocation optimization, and returns-based style analysis for evaluating the...
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I Got Married Last Weekend! The Planning is Finally Done…or is it?

Planning your wedding can occupy much of your time and attention and cause a lot of added stress.  I got married last weekend and am breathing a sigh of relief that the planning for our big day has come to an end and everything went smoothly.  But what about planning for our married financial life?  As perfect as you want your special day to be, these financial decisions will impact the rest of your lives more than the color of your table linens or wine that is served.  And I thought choosing the perfect first dance song and coordinating accommodations for out-of-town guests was stressful!  Now we need to talk about budgets, debt, and pre-nups! How to Start the Conversation: The most important thing to remember when starting to discuss finances with your future spouse is to be honest.  Share everything - every account, credit card debt, student loan, etc.  Put...
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Tips to Start Repaying Your Student Loans After Graduation

The latest research shows there are currently 44 million student borrowers in the U.S. that share $1.4 trillion in student loan debt.  The average Class of 2016 graduate has $37,172 in student loan debt. With many students choosing to continue their education beyond a Bachelor’s degree, students are taking on more of this debt later in life making it even harder to repay. Income that would be used to repay student loans is now competing with retirement savings, home purchases, and the costs of raising a family.  Although logging into your student loan account and seeing that balance can be overwhelming and you may want to avoid it at all costs, the sooner you develop a plan to tackle it, the more money you will save in interest and the sooner you can start saving more for your future. When to Start Payments Start payments right after graduation, if not before....
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Asset Classes and Their Characteristics

Investments are financial assets because their payoff or return is in money.  However, tangible assets such as real estate or collectibles such as art are non-financial assets because their return is in their utility or enjoyment rather than money. Asset classes are the category of investment to which you are providing your money with the expectation of a financial return on the amount you provided to the other party for use.  An asset class includes groups of investments with similar characteristics, that behave in a similar manner.  Each asset class reflects different risk and return investment characteristics, and is expected to perform differently in any given market environment. Investors interested in maximizing return often do so by reducing portfolio risk through asset class diversification (investing in multiple asset classes.) Investment strategies can be based on income, growth, value, or a variety of other factors that help to identify and categorize investment...
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Routine and Discipline

School started last week for my youngest and this week for my oldest.  Although my husband and I both work outside the home and we still had a schedule, routine and discipline were definitely lost as popsicles became more of a staple than a treat and bedtime became coming in from the outdoors at dark.  We enjoy summer as there is more time with family, friends and neighbors, more time for adventure, the sunlight feels so good and allows us to easily get outdoors, and there is no talk of homework.  I would say a good term for the feeling is a “summertime lullaby.”  I recently read this term “summertime lullaby” when describing the market euphoria that has become much discussed during the summer of 2017.  Last week, the DOW hit an all-time high and posted its eighth straight record close.  US equity indices have been on a tear lately and...
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Second Quarter 2017 Investment Commentary

The second quarter proved to be another very strong period for global stock markets. Larger-cap U.S. stocks (Vanguard 500 Index) gained 3.1%, developed international stocks (Vanguard Developed Markets ETF) rose 6.4%, European stocks (Vanguard FTSE Europe ETF) jumped 8.4%, and emerging-market stocks (Vanguard Emerging Markets ETF) rose by 3.4%. First half 2017 stock performance was even stronger. Larger-cap U.S. stocks surged 9.3%, while international indexes were each up in the mid-teens. In a reversal of May’s sector trends, U.S. financial stocks rallied in June on strong results from the Federal Reserve’s “stress tests” plus more positive sentiment given rising interest rates, while technology shares declined. Commodities prices and energy stocks remain a weak spot amid a global rally in risky assets. Oil prices fell 14% during the quarter and nearly 20% for the first half of 2017 on fears that production will continue to outstrip demand.   As we look back...
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Investing Terms: From Alpha to Zeta (Part 1)

If you watch CNBC or read the Wall Street Journal, you may hear or see terms and acronyms mentioned by market analysts, investment professionals and the financial press. What do these terms mean?  Although there are many, many terms you may encounter, let’s explain a few of the terms you may need to understand or could be interested in. Alpha:  Alpha is the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM).  Alpha could be generated by investors selecting specific holdings and/or weightings based on investment analysis.   Beta:  Alpha and beta are two of the five standard technical risk calculations, the other three being the standard deviation, R-squared, and Sharpe ratio.  Beta represents the overall volatility of an investment relative to the market, which has a beta of 1.0.  If an investment has a Beta of 1.2, it would be...
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My Employer Sponsors a 401k Plan – How do I Get Started? What Do I Need to Know?

You know you should be saving for retirement but it’s difficult to make it a priority when it seems so far away.  You have current financial demands – living expenses, paying down student loans, rent/mortgage, etc. and it feels like you don’t have much to contribute to retirement right now, but all you have to do is start with something!  A 25 year-old who starts saving $100 a month, with a 7% rate of return would have close to $265,000 by age 65. One of the biggest advantages that we have is time.  We have time to save and time for our money to grow.  Creating these habits of saving now will pay off greatly when you reach retirement.   How Much Should I Contribute? Most employer 401k plans include a match up to a specified percentage of your contributions.  By not contributing to your 401k, you are turning down part...
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