BWM Advisors has taken the helm as the sole advisory firm providing oversight of your investments.




Being independent is wonderful. It gives my firm lots of options in providing services. One thing new here is the launch of BWM Advisors, a Registered Investment Advisor or RIA. BWM Advisors is a separate company from Bonnett Wealth Management. Its purpose is to improve client services. Allow me to explain.

What is a Registered Investment Advisor?

An RIA is a registered business that can provide investment advice to the general public. (See more below.) By forming my own RIA firm, I can have client assets held by Charles Schwab Institutional Services, Securities America and a host of other qualified custodians. While Securities America will still be the custodian for many accounts, BWM Advisors will replace Securities America Advisors in providing oversight for client accounts.

What is the difference between Securities America Advisors and BWM Advisors?

Both SAA and BWM Advisors are RIA firms. Both provide financial planning and asset management services. In fact, I was a representative of SAA for many years, until forming my new RIA firm. Little in the oversight process will change. However, most clients will experience lower fees and lower custodial expenses.

Why will investment fees and expenses generally be lower?

All RIAs charge fees for financial planning and asset management services. Expenses vary depending on the account custodian. But …

1. BWM Advisors uses the latest technology and client management processes. We believe this allows us to run more efficiently, more competitively and with a lower fee structure than many other RIA firms.
2. BWM Advisors works primarily with low-cost qualified custodians to keep expenses down in maintaining accounts and administering trades. (For example, Charles Schwab does not assess any annual IRA fees at this time.) While some clients and portions of some clients portfolios will remain in custody with Securities America, in general new clients, existing clients with managed accounts and new investments from existing clients will make use of our new relationships with low-cost qualified custodians.

Why else are you forming BWM Advisors?

Setting up my own advisory firm has allowed me to work with some of the best technology partners in the business. These technology partners will provide access to your accounts over iPhone®, iPad® and Android® devices. Since these new platforms will integrate more easily with my practice, I believe BWM Advisors will be able to provide clients with faster and more reliable service — easier online access to accounts, real-time account balances, quick access to documents, such as tax forms and other documents you choose to place online, faster trading and more.

Are you leaving Securities America?

No. Securities America was recently acquired by a new parent company, Ladenburg Thalmann & Company Inc., an old investment banking firm established in 1876. The firm has been a member of the New York stock exchange since 1879. We have a good relationship with Securities America and will continue to use their custodial services.

I think you’re going to be very pleased with all that’s happening at Bonnett Wealth Management. I believe our new advisory firm, BWM Advisors, will bring many benefits to clients.

As always, I appreciate your continued business.

Sincerely,

Jerome “Joe” P. Bonnett, Jr., CFP®, ChFC®

Bonnett Wealth Management
(402) 556-8858 Telephone
800-956-8858 Toll Free

RIAs or Registered Investment Advisors are part of the Investment Advisors Act (IAA) of 1940. Under the act, RIAs must register using Form ADV and are required to update their ADV form annually and file operating reports with the SEC or state regulatory agency. The investment advisor must also provide to clients and prospective clients a written disclosure statement and allow inspection by the SEC or state regulatory agency of any books and records relating to investment advisory activities. Advisors generally cannot receive compensation based on the performance of their advisement, nor can they engage in excessive trading or profit from market activity resulting from their advice to clients. Investment advisors must also act in the best interest of their clients at all times and take into consideration their clients’ financial positions and financial sophistication. Please consult a qualified advisor before making any investment decisions.

Based on recent figures from the U.S. Department of Labor, Bureau of Labor Statistics, we see that expenses keep rising. Lately, some necessary items have risen considerably, which need to be accounted for in planning carefully for one’s retirement years.

Here is the latest data:

Overall costs: The Consumer Price Index*, a measure of living expenses, increased 3.0% from December 2010 to December 2011, the largest December-December increase since 2007, according to the BLS.

The following components contributed significantly to the 2011 overall CPI figure.

Energy: The energy index increased 6.6% in 2011. It represented a deceleration from the 2010 increase of 7.7%. Still, this component included indices for gasoline (up 9.9%), fuel oil (up 18.0%) and electricity (up 2.2%).

Food: The food index accelerated in 2011, rising 4.7% compared to a 1.5% increase in 2010. All six major grocery store food group indexes rose in 2011, with increases for fruits and vegetables (up2.3%) and dairy (up 8.1% ).

Hospital and related services: The overall medical care index measured by the government was up 3.0% for 2011. But, hospital and related services showed an increase of 5.6% for the year, after a jump of 7.0% in 2010. The cost of professional services (physicians’ services, dental services and eyeglasses and eye care) were inline with the 3% overall cost of living increases. The cost of a hospital bed and outpatient hospital services, however, exceeded the overall average.

If you are a client of mine and have questions about your current investment plan and retirement plan, please call our office.

*The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The above CPI figures are the CPI for All Urban Consumers (CPI-U), which represents a majority of the total U.S. population. Each month, the government collects prices in 87 urban areas across the country from about 4,000 housing units and approximately 26,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index.

A baby boomer, age 65, who retirees this year has a life expectancy of 78.7 years, according to the Centers for Disease Control and Prevention’s National Vital Statistics Reports (Vol. 60, No.4, Jan. 2012, p. 6).

Assuming an average round of golf costs $40 (which factors in the cost of balls, clubs, etc.), assuming 2% annual inflation on the cost to play, and assuming an annual rate of return on savings of 3%, the boomer needs a $79,812 lump sum ready to go today to fund a 13.7-year golf habit.

Make that $91,500 if inflation ends up being 4% per year for the next 13.7 years.

How are they doing today?

BAD EXAMPLE. This stock investor is pretty much no longer in stocks. He sold most of his holdings in late 2008, right after a large stock market drop (bad timing unfortunately). A market recovery took place, but he didn’t return to stocks until late in 2010, well after the recovery was underway and missing early gains. In June 2011, he panicked again. The markets went through a period of volatility, and he liquidated most of his positions after the S&P 500 had dropped 1,000 basis points. Again, bad timing. To sum up: He’s buying high, selling low, and not really following a plan.

Update: The story today is the same. This investor has not returned to the stock market. Instead, he’s retreated to a short-term mix of investments, including cash, CDs and bonds, which together earn him a combined annual rate of return of less than 3%.

I will never fault someone who is uncomfortable with stocks. Stocks are not a good choice for everyone, depending on a person’s age and goals. However, the S&P 500 was flat in 2011, with large swings in price occurring throughout the year. So, in my opinion, 2011 would have been a good year to dollar-cost average into the market. Such a strategy could have lead to the purchase of several stocks on the relative cheap — on the down side of market vacillations — had he taken advantage of it.

Furthermore, by having little stock exposure this investor missed out on dividends and dividend reinvestment opportunities that could have further improved his stock performance.

Now let’s turn to our good stock investor example.

GOOD EXAMPLE. The good example is a physician. He’s not without some fear and concern about the markets. But, he has stuck to his investment plan and has continued to buy shares of stocks — a little here, a little there and regularly — from after the 2008 market correction on up until today. Doing so enabled him to buy shares at low prices when the markets were weak, while limiting stock purchases during periods of market strength.

Update: Today, this physician continues to invest in stocks and continues to reap good performance results. For one thing, the markets have improved since last summer, so his account balances are up. Also, many companies** whose stock he owns have raised their dividend payouts. Some companies have increased their dividends twice since 2009. For example:

• Visa Inc. (V). Visa’s stock price has increased from about $75 share to $107 at the time of this writing — over the past year. In addition, Visa currently pays dividends of $.88 a share. That dividend payment was raised last August from $.60 a share — a 46.67% increase.
• Microsoft (MSFT). Microsoft currently trades at $30 a share, up from about $27.50 a year ago, so there’s been some gain. Just like V, MSFT increased it’s dividend payments. Current dividend payments are $.80 a share. That’s up from $.64 a share in August 2011 — a 25% increase.

All along, then, our “good example” investor has benefited by sticking to his investment plan. In time, as the markets have improved, as has the value of his holdings, and he’s receiving more dividend payments these days.

As you can see, buying and holding according to a smart financial plan is a good strategy, certainly superior to taking a panicky approach to the markets.

Related article:

• Market Jitters? Just Keep Investing.

* These examples are simplified for illustrative purposes. Buying and selling securities, including stocks, should always be done in conjunction with a plan that fits your wealth management needs and goals and should include help from a qualified advisor.

** Mention of specific companies in this article is not to be construed as a solicitation for or a recommendation to buy or sell securities in those companies. I do not personally have an investment position with any of the companies mentioned in this article. They are mentioned here solely for illustrative purposes.

The case for Kindle*

Selling at $199 (v. $499 for the lowest priced iPad), Amazon’s Kindle Fire sold more than 4 million units during December, according to PCWorld.com (“Kindle Fire Cut Into iPad Sales, Analyst Says,” Jan. 3, 2012). A source for the article said that overall sales growth for the iPad during the holidays was off. The analyst estimated that Apple sold 13 million iPads during the final quarter of the year, which was better than the third quarter but short of 16 million many expected. But, in the opinion of the source, Kindle Fire cut significantly into iPad sales, and may have trimmed total iPad holiday sales by “one to two million units.” Hence, a win for Kindle.

The case for iPad

As part of the stellar earnings announced in late January, Apple reported that it sold 15.4 million iPads for the quarter (a figure well above what PCWorld.com reported). These results prompted a Forbes contributor to title an article, “Kindle Fire Had Its Chance At Christmas. Now the iPad’s Unstoppable.” The article says Apple CEO, Tim Cook, brushed off Kindle’s business as having had no impact on iPad sales at the end of the year. So,make that a win for iPad.

Actually, I see a lot of people having both products.

• Amazon’s Kindle is easier to read (especially in direct sunlight) and lighter to hold. I plan on buying a Kindle Fire myself to watch Amazon-distributed video content and read Amazon-distributed e-books.
• But, iPad in my opinion offers a smoother ride over the Internet than Kindle. From what I’ve read, Kindle Fire seems to have a harder time navigating on the Web to content beyond what Amazon makes available.

So, there are differences between the two devices. Both are filling niches in today’s marketplace and may, in the end, compete side by side. Will Kindle or iPad become the dominant device? Will Amazon, Apple or another company “own the Web”? Its tough to say right now. So, I’ll keep an eye on developments.

* Mention of specific companies in this article is not to be construed as a solicitation for or a recommendation to buy or sell securities in those companies. I do not personally have an investment position with any of the companies mentioned in this article. 

These examples are simplified for illustrative purposes. Buying and selling securities, including stocks, should always be done in conjunction with a plan that fits your wealth management needs and goals and should include help from a qualified advisor.

Tax Forms May Trickle In

You should receive by mail various tax forms that you will need to prepare your return.

Many of the forms you’ll need — such as Form 1099 (which includes interest income, dividend income, miscellaneous income, among other income types) — should have been in the mail to you by January 31. But please be patient. Tax reporting requirements often allow providers extensions.

Other forms, such as Form 5498 (which reports your IRA contributions to the IRS) is filed by your IRA trustee or issuer — not you. They have until May 31 to complete and mail it to you.

So, not every form will arrive in the mail at the same time. In some cases, mailed forms will have to be revised in order to accurately reflect tax related items. If that is the case, the form will be reissued and re-mailed to you with the “corrected” box checked.

Good Time to Revisit Your Investment Plan

Something else to keep in mind while you’re gathering tax paperwork and completing your return is conducting a simultaneous review of your investment portfolio. Doing so may reveal strategies you can use to reduce your tax liability. Some strategies may have a direct impact this year, while others may be implemented over the next several years, depending on IRS rules.

We recommend a coordinated tax and investment planning process working with you and your tax advisor. Please contact us at your earliest convenience to schedule an appointment.

Jurassic Park postage stamp

Today’s ‘New Normal’

“The pace of change in our economy and our culture is accelerating,” says Fast Company. The leading chaos contributors are new technologies that enable greater social interaction and more widespread mobile commerce.

The result: “Our visibility about the future is declining,” states the article. It’s difficult to weigh risk and opportunity as change comes from many directions.

Consider:

• Smartphones. “Just five years ago, three companies controlled 64% of the smartphone market: Nokia, Research in Motion and Motorola,” says Fast Company. Today, two different companies are at the top: Samsung and Apple.
• Advertising and publishing. We’ve seen the rise of deal-of-the-day provider Groupon, and the fall of bookseller Borders.
• Political mapping. Participation by users on Twitter and Facebook can affect candidates’ strategies for election, kill a bill in Congress, affect a charity’s fund-raising ability and contribute to a revolution in Egypt.
• Entertainment. Cable TV is losing ground to streaming TV, due to products from Apple, Roku, Sony, Netgear, Netflix and Microsoft. (The Wall Street Journal, “Must-Stream TV,” January 7-8, 2012, p. D2.)
• Leadership positions. A decade ago, who could have seen the rise of Facebook (845 million regular users at the time of its IPO filing)? The fall of Blockbuster? The return of Brazil as an economic powerhouse? The downgrade of U.S. government debt?

“The pace of disruption is roaring ahead,” says Fast Company. “The next decade or two will be defined more by fluidity than by any new, settled paradigm; if there is a pattern to all this, it is that there is no pattern. The most valuable insight is that we are, in a critical sense, in a time of chaos.”

Chaos is a topic of interest to me as a wealth manager. I prefer that clients be structured in their approach to financial planning, and not in a state of flux when considering their investment opportunities. This is especially important in the current market environment, which is full of flux.

• “Stock market volatility has been a little higher than average over the past few years,” wrote Forbes contributor Rick Ferri in his January 17, 2012 column entitled, “Markets Haven’t Changed, But Maybe You Should.”
• The New York Times article, “The New Normal—Violent Market Swings” (updated online September 12, 2011), also notes that increased volatility is evident in the markets. The article adds that some financial historians think the markets “are in a ‘new normal’ of permanently heightened volatility.”

Chaos Implications

For companies …
The goal is to restructure to handle fluxing marketplaces and customers. For example, General Electric, one of America’s most successful companies, is a classic hierarchical business institution facing change. The company wants its managers to expand their peer networks and learn new ways to adapt. “We need to systematize change,” says GE’s chief marketing officer Beth Comstock as quoted by Fast Company. “There’s a need to be less hierarchical and to rely more on teams.”

For people …
The key is to be open to change. “Command-and-control hierarchical structures are being disintegrated,” says danah boyd (spelled with lower-case letters), a social scientist with Microsoft Research. “There’s a difference between the old broadcast world and the networked world.” GE’s managers met recently and viewed presentations entirely on iPads—reportedly a company first. The technology is viewed as a driver of one’s ability to adapt. “How many of you use the same cell phone from five years ago?” stated a GE exec. “The world isn’t the same, so we need new parameters.”

For investing and retirement planning …
Investors, near-retirees and retirees should expect change. Avoid trying to map every detail of where you think the markets are heading—thinking that’s possible, when it isn’t. “Ambiguity is rising to unprecedented levels,” says Fast Company.

Longtime clients know that I’m a strong proponent of planning, not of reacting. The financial planning process, I believe, can help one think through long-term needs and goals and take appropriate steps to achieve them. Smart planning can set up parameters, which can help one avoid making panicky investment decisions.

So then, as chaos reigns, add structure to your investment and retirement choices by maintaining your financial planning process. And in the meantime, have fun trying out new things …

• Take a Kindle Fire out for a spin. (See my December 2011 post, “I Read an Article, and I Believe I’m Seeing the Future.”)
• Open a Twitter account (it’s free), and tweet a thought.
• If you have an iPhone or an iPad, download a free app called Flipboard, and use it to read the news and catch up on culture in one of most original ways I’ve ever seen.

We can’t afford to be sentimental about the past. “Do we really want to return to a world of just three broadcast channels?” says a Fast Company Fluxer. I don’t think so. But I do think the world of financial planning is just fine. No need for change there, because it’s possible, I believe, to be deliberate and methodical in these volatile times.

Disclosure
Mention of specifics companies in this article is not to be construed as a solicitation for or a recommendation to buy or sell securities in those companies. I do not personally have an investment position with any of the companies mentioned in this article. They are mentioned here solely for illustrative purposes.

Due date extended.

The large estates (normally $5 million +) of people who died in 2010 will have until January 17, 2012, to file Form 8939 and pay any estate taxes due. For estates opting to make this choice, the special carryover basis form was previously to be due on Nov. 15, 2011.

Penalty relief.

In addition, the IRS is providing penalty relief to certain beneficiaries of these estates on their 2010 federal income tax returns. This relief is designed to give large estates  more time to comply with key tax law changes enacted late in 2010.

Extensions available through March 2012.

Those 2010 estates that request an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due.

Revised versions of the estate tax forms are now available on IRS.gov. The carryover basis Form 8939 is also available. More details are available at Notice 2011-76. Please consult your tax advisor, or legal counsel, for advice concerning estate tax and estate planning matters.

The American Association of Long-Term Care Insurance (AALTCI) and the U.S. Congress hope to make more people aware of the risks and costs associated with long-term care. Here are some national average cost figures:

• $85,775/year for a private room in a nursing home,
• $75,555/year for a semi-private room in a nursing home and
• $39,240/year for an assisted living facility.
• $20/hour for at-home care.

Source: 2011 Johns Hancock Financial Cost of Care Survey conducted by LifePlans

AALTCI urges Americans to buy LTC insurance before age 65 to avoid the high costs associated with waiting. Factors that affect the cost of LTC protection include your age and health.

• Good health could help secure discounts that may not change even if your health does in the future.

I recommend taking some steps that can help protect you against the financial risks associated with long-term care. This involves putting together a retirement plan that includes planning ahead for long-term care expenses.  Call our office today to create or review your retirement plan and discuss the importance of planning for long-term care.

Of course, I read the article on my iPad2, which is ironic. This article is about Jeff Bezos, Amazon’s resilient and innovative CEO. The article says that he “Owns the Web.” So, I’m sure Bezos read the piece on a Kindle Fire, his bet on the future.

Jeff Bezos, CEO, Amazon*
You don’t hear quite as much about Bezos as you do about former Apple chairman Steve Jobs. There’s a best-selling book out on Jobs. Jobs is even profiled in the same print edition of Wired (see page 230, “The Revolution According to Steve Jobs,” for reflections on Jobs’ legacy.) But in my opinion, I think you’re going to hear more and more about Bezos and his view of the world.

Jeff Bezos, CEO, Amazon

Kindle Fire, Bezos says, “is the culmination of the many things [Amazon.com has] been doing for 15 years.”

He’s thinking that Kindle Fire will set the world ablaze. I read how Kindle Fire is considered by many to be the first serious challenger to the dominance of iPads. This season, Kindle Fire ($199 at retail) is making its mark in stores, in ads and on TV, and of course on Amazon’s website.

But the story isn’t really about the devices, Kindle and iPad. It’s about cloud computing and the ability of users to access content. The story is about touch-screen technology and the move away from the mouse. It’s about users being delighted by the staggering amount of media they can now access in the palm of their hands.

Touch screens allow your fingers to swipe, stroke and flick your way through the Web and through apps. I remember the technology being new in the ’80s and ’90s. This time, it’s here to stay.

The future is here – iPad and Kindle Fire are powering it. Our book and audio collections now exist in cyberspace, in what technologists call “the cloud” — the collection of online storage where digital media is kept. “The cloud” is just a bunch of computers used for storage. In it, Netflix stores your movie downloads. NASA uses it for its Jet Propulsion Labs. So does the Harvard Medical School. In fact, they all use Amazon’s cloud storage services.

So, you can now tote the content you own (or rent). You just need a device to stream live content or download content. Kindle is built to stream. iPad, iPod and iPhone had been built to download, but Apple has introduced iCloud and with it is moving toward the streaming model like Amazon.

This is what amazes me …
Normally, tech companies move like lightening. They have to. Rapid-fire changes in engineering design, material costs and production make the life of a tech product and product category tenuous. The tech world lives in the moment. I’m not saying technology companies don’t plan or consider long-term goals and market trends. However, they live in a world of immediacy. Standards change quickly. Gadgets come and go. When you design and manufacture them, you have second, third and fourth iterations already in the pipeline just as the first generation device hits the stores.

Bezos sees things differently. After reading the Wired article, he strikes me as a long-term player. He thinks of technology not in the form of devices, but services…

• “Indeed, Bezos doesn’t consider the Fire a mere device, preferring to call it a ‘media service,’” the Wired article states.

Bezos takes pride in Kindle Fire’s design. More important, though, is its function. “He really sees it as an advanced mobile portal to Amazon’s cloud universe,” the article says.

Wherever you go, your device can access “the cloud” to stream books, music and video. Upgrade your Kindle Fire, and you still have access to your content. “Replacing the hardware is no more complicated or emotionally involved than changing a flashlight battery,” the Wired article states. With the right subscriptions, you can watch episodes of Lost today. Then, 15 years from now, you can still watch those Lost episodes on your “Kindle Fire15,” the version I imagine would be out at that time. “What we really built is a fully integrated media service. Hardware is a crucial ingredient in the service,” Bezos says, “but it’s only a piece of it.”

A big piece of Bezos world is low margins
The lower, the better. “We’re a company very accustomed to operating at low margins,” Bezos says. “We grew up that way. We’ve never had the luxury of high margins, there’s no reason to get used to it now.”

Amazon works the “high volume + low margin” formula very well. As the company enters each new market, it uses this formula. But, it’s willing to make the necessary investments so as to succeed. For example, many may credit Amazon with permanently changing the physical bookstore business, and I would agree. Yet, in moving into e-publishing, Bezos understands the need to structure the business for the long term. “We believe that some of the royalty streams being paid for e-books are not high enough,” he says. “That’s why, in our Kindle Direct Publishing program, if you price your book between $2.99 and $9.99, we give you 70 percent of the revenue.” Think about that. In doing business with authors, Bezos will give a 70-percent share for their book rights. Of course, that lowers Amazon’s margins, but Bezos feels he can sell a lot of books. Time will tell whether or not the model will work in direct publishing. But I like how Bezos has a clear strategy and sticks to it.

Not in it for the quick strike
So, then, in Bezos I see a company founder who’s not in it for the quick strike. Here today, cash out tomorrow. No. Bezos wants to build something. He wants his work to last.

I think you can see that there are some principles here that translate into the world of financial planning. My world.

• Focus your planning on the long-term.
• Keep an eye on expenses.
• Don’t make investment choices simply for “quick strike” opportunities.

More Jeff Bezos quotes …
On customer service: “Our version of a perfect customer experience is one in which our customer doesn’t want to talk to us. Every time a customer contacts us, we see it as a defect. I’ve been saying for many, many years, people should talk to their friends, not their merchants. And so, we use all of our customer service information to find the root cause of any customer contact. What went wrong? Why did that person have to call? Why aren’t they spending that time talking to their family instead of talking to us? How do we fix it?”

On staying focused: “I like to say, ‘Maintain a firm grasp of the obvious at all times.’”

On being patient: “In some cases, things are inevitable. The hard part is that you don’t know how long it might take, but you know it will happen if you’re patient enough. E-books had to happen. Infrastructure web services had to happen. So you can do these things with conviction if you are long-term-oriented and patient.” “I like invention. For me, it feels like the rate of change on the Internet today is even greater than it was in 1995. It’s hard for me to imagine a more exciting arena in which to invent. And so, it’s pretty easy to wake up excited.”

* My disclosure …
I want you to know that I personally do NOT have any investment positions with Amazon stock. I am not making a recommendation for you to buy Amazon. I simply am recommending that you think broadly and long-term.