What to Do If You’re a Victim of Tax Identity Theft

by Bob Donaldson

When it comes to filing tax returns, many people worry about completing every form correctly and according to the instructions. Unfortunately, taxpayers now have a bigger problem to contend with: the possibility that a scam artist may file a fraudulent return in their name. It happens all too frequently, according to the Internal Revenue Service, which estimates that it will process $21 billion in phony tax refunds next year.

How the scam works
To fraudulently file a tax return, a thief just needs your name, social security number (SSN), and date of birth. From there, he or she can easily falsify W-2 information and attempt to claim a refund in your name. You, the taxpayer, most likely won’t find out about the fraud until it’s too late—when you receive notification from the IRS that your real tax return has been rejected. Once you report the fraud, it can take six months or more to clear up the issue with the IRS and get your refund.

Cyber criminals obtain victims’ information in a number of ways—posing as an IRS representative and asking for personal details via phone or e-mail, sending phishing e-mails, stealing your W-2 from your mailbox, and exploiting unsecured Wi-Fi networks, to name a few. Unfortunately, with tax fraud, your SSN has been compromised, which means that you may face other identity theft-related problems in the future.

What do you need to do?
Unlike a credit card number, an SSN cannot simply be canceled and changed when it’s stolen. If you’ve fallen victim to tax identity theft, taking these steps can help you protect yourself from the fraudulent use of your SSN going forward.

  1. Notify the Federal Trade Commission (FTC), Social Security Administration (SSA), and IRS. The more quickly you take action, the less damage will be done. In addition to calling the IRS Identity Protection Specialized Unit at 800.908.4490 to report the theft, you’ll want to file a complaint with the FTC and notify the SSA.
  2. Complete and submit IRS Form 14039. If you haven’t already done so, fill out Form 14039, the Identify Theft Affidavit, so that the IRS is aware that your future returns may be at risk.
  3. Apply for an Identity Protection PIN (IP PIN). Identity theft victims can register for a six-digit IP PIN, which the IRS uses to confirm your identity on future tax returns and prevent further misuse of your SSN.
  4. Notify one of the major credit bureaus. Report the fraud and place an alert on your credit report with one of the three major credit bureaus: Experian, TransUnion, or Equifax. (When you file a report with one bureau, it is legally required to alert the other two.) A fraud alert on your credit report will require potential creditors or lenders to contact you directly and obtain permission before opening a new line of credit.
  5. Strongly consider purchasing credit monitoring to keep tabs on your credit report. Credit monitoring services will not only alert you when someone applies for a new line of credit in your name, but they will monitor existing accounts and notify you of any changes. Many also offer recovery assistance services, monetary and legal assistance, and insurance that covers expert identity theft consulting, as well as financial relief.

Staying vigilant
Once you’ve resolved the issue, you may not face another identity theft problem for a couple of years. Given that at least one thief has your SSN, however, it’s important to stay alert. Here are some tips to keep in mind:

  • Starting with the 2015 tax year, file your taxes as soon as possible using your IP PIN.
  • Remember that the IRS will never contact you electronically and only rarely via phone; it typically communicates via letters through the U.S. Postal Service. If you receive a phone call from someone claiming to be with the IRS, hang up and call your local IRS office directly.
  • Again, credit monitoring may help you keep tabs on your situation and alert you to possible fraudulent activity.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®



You want to buy a vacation home
05 JAN 2016

So You Want to Buy a Vacation Home . . .

Presented by Bob Donaldson

 As the weather warms up, many people are thinking about summer plans—and possibly dreaming of buying a vacation home. Although the idea of having a permanent "home away from home" may sound appealing, purchasing a vacation property isn't something to be entered into lightly. If you're considering this major commitment, here are some important questions to ask yourself.

What's your budget?

The process of buying a second home generally starts with the financials. In addition to the cost of the property itself, you need to consider other expenses such as:

• Property taxes
• Insurance
• Repairs and maintenance, landscaping, and utilities

If you'd need to take out a second mortgage to finance the purchase, you'll have to decide if getting further into debt makes sense. Do your due diligence to see if you're a candidate for a second mortgage, including reviewing your debt-to-income ratio (lenders look for a number below 36 percent) and your current credit score.

How will you use the property?

A key factor in the financial calculation is whether you'll use the home solely as your personal vacation residence, turn it into a rental property, or some combination of the two. Many people use rental income from a second home to offset the mortgage until the property is paid off. If you rent out the home for fewer than 15 nights per year, you can keep the income without reporting it to the IRS. If you rent it out more than that, you must report the rental income, but you also qualify to claim certain deductions.

How much you get to deduct depends on how you divide your personal time at the property and the rental time. If you spend 14 nights per year at the home, or more than 10 percent of the number of nights it is rented out, whichever is longer, the IRS considers the home a personal residence, and you can write off typical rental expenses against your rental income.

Who will manage the property?

If renting the vacation house is part of your plan, it's important to consider who will take responsibility for:

• Overseeing the property for you (including cleaning, repairs, and the like)
• Coordinating with renters
• Assessing the local rental market to price the property accordingly (too high may lead to vacancies; too low won't maximize your investment)
If you live a considerable distance away from the second home, hiring a local property manager is an expense that can't be overlooked.

What kind of insurance will you need?

Insurance is a necessary protection for any piece of property, and vacation homes can present additional risks. There are many options to choose from, so it's important to do your research. Some insurers may offer a second-home endorsement to your primary residence coverage instead of selling you another stand-alone policy, which may be a more affordable choice.

Additional insurance considerations include:

• Location: Aside from a spectacular view, be sure to consider points like neighborhood crime rate, natural dangers common in the area (flood, hurricane risk), and the history and state of the property itself.

• Amount and type of liability coverage: Whether the house will be vacant for extended periods or rented by many tenants over the course of the year, it's imperative to ensure that you have sufficient coverage and to adjust it over time if necessary.

How easy would it be to sell?

Eventually, if you decide to sell the property, you'll want to be sure you can make a profit. Popular vacation areas tend to have higher property appreciation rates, but location isn't everything. You should plan to invest in upgrades and maintenance along the way to maximize the return on your investment.

Making a wise choice

Buying a vacation house can be an exciting accomplishment (and possibly a great investment), but it requires serious consideration, especially from a financial standpoint. Ensuring that you have the means to comfortably purchase a second home—and recognizing the additional expenses that come along with it—is key to making a smart decision that your family will enjoy for years to come.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.


To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Low Oil Prices
06 JAN 2015

What Do Lower Oil Prices Mean for You?

by Bob Donaldson

Since mid-2014, crude oil prices have been on the decline, causing gas and other oil-product prices to drop significantly. Although the long-term economic impact of falling oil prices remains to be seen, this dramatic price change is affecting Americans' everyday lives in a number of ways.

Big savings at the pump

The most notable change, of course, is that it costs a lot less to fill your car's tank these days, with the average gas price in the U.S. hovering just below $2.30 per gallon. Overall, U.S. consumers save about $1.5 billion for every penny that the price of gas falls, according to Gluskin Sheff & Associates.

Thanks to the extra cash in Americans' pockets, personal spending jumped 4.3 percent in the fourth quarter of 2014, up from 3.2 percent in the third quarter. In January, consumer confidence was at its highest level in more than seven years.

So what are Americans doing with all this newfound cash and confidence? Spending has increased in two key areas:

  • New cars: Auto sales climbed in January (typically a slow month), and the Conference Board reported an uptick in the number of people planning to buy a new car in the next six months. According to Kelley Blue Book, sales are expected to rise 13 percent, to 1.14 million, in 2015.
  • International travel: Combined with the strong dollar, lower international airfares have many people planning trips abroad in 2015.


What isn't changing . . . yet

Of course, lower oil prices aren't translating to lower costs across the board.

  • Domestic flights. Unfortunately, although traveling internationally or filling your tank for a road trip might be cheaper, domestic airfares remain largely unchanged. If oil prices continue to drop, fares may start to tick down later in 2015, but don't look for them to budge in the near future.
  • Real estate. In communities where oil-related industries provide many local jobs, falling prices have the potential to put a damper on the real estate market. In other communities, however, the savings from oil costs (in terms of home heating, transportation, and the like) might actually boost homeownership. In any case, there tends to be a substantial lag before the real estate market reacts to such a price drop. 

For most people, a welcome boost

Along with positive economic factors, lower oil prices have bolstered Americans' purchasing power, allowing people to spend more (or save more). So far, the drop in oil prices has had mostly favorable consequences for the everyday consumer.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®



Healthy Resolutions Can Pay Off (Literally)

by Bob Donaldson

If you made a New Year's Resolution to get healthy, you may get more bang for your resolution buck than you bargained for. That's because healthy habits can benefit your wallet as well as your body.

The link between health and money

According to the Centers for Disease Control and Prevention (CDC), chronic conditions–including diabetes, heart disease, and cancer–account for more than 75% of all health-care costs nationwide. Nearly half of all Americans have a chronic disease, which can lead to other problems that are devastating not just to health but also to a family's finances. People with a chronic condition pay five times more for health care each year, on average, as those without a chronic disease.*

Many chronic diseases can be linked to four behaviors: tobacco use, excessive alcohol consumption, poor eating habits, and inactivity.* A closer look at each of these behaviors demonstrates the health-money connection.

Tobacco and alcohol

The American Cancer Society (ACS) reports that the average price of a pack of cigarettes in the United States is $6.36. That means the average annual cost for a pack-a-day smoker is more than $2,300. However, the average health-related cost to a smoker, says the ACS, is $35 per pack–or $12,775 per year for someone who smokes a pack a day.

The National Institute on Alcohol Abuse and Alcoholism defines moderate drinking as one drink per day for women and two for men. Drinking more than that can lead to health problems, including various forms of cancer as well as impairment of your brain, heart, liver, and pancreas. Such outcomes have economic costs. The CDC reports that in 2006, the national cost of excessive alcohol consumption was $223.5 billion, 42% of which was shouldered by excessive drinkers and their families.

Eating habits and activity level

Proper nutrition and regular exercise are vital to staying healthy, but they can also save you money. For example, reducing the amount of high-in-saturated-fat products, processed foods, and red meat in your diet can result in benefits to your heart and wallet. Replacing high-fat ingredients in some recipes with healthier, low-cost options–such as using beans instead of ground beef–can help trim your grocery bills. And replacing high-calorie meals eaten at restaurants with meals made at home using fresh, in-season ingredients can benefit both body and bank account.

Current guidelines from the U.S. Department of Health and Human Services recommend at least 2½ hours of moderate physical activity per week. Many opportunities exist in everyday life to both accumulate active minutes and save money. Instead of driving to your destination, walk or ride a bike. Do your own yard work or house cleaning instead of hiring help. Go for a hike or play ball with your kids rather than going to the movies or visiting an amusement park.

Long-term considerations

Chronic disease also has indirect long-term costs. Leaving the workforce for extended periods–or having to retire early–means fewer paychecks, less chance to benefit from workplace-provided retirement plans and health-care benefits, and lower earnings to apply toward Social Security benefits. In addition, chronic diseases often necessitate home renovations, the hiring of specialized care providers, or even permanent nursing care. When viewed over the long term, taking steps today to reduce your risks of getting sick down the road may make good health and financial sense.

*Sources: Centers for Disease Control and Prevention, the Department of Health and Human Services, and the Partnership to Fight Chronic Disease

Winter Preparation Checklist

by: Bob Donaldson

Are you ready for colder weather and the end-of-the-year rush? Consider using some of these tips to help you save money and time as winter approaches.

Ready your home and car

Your house and vehicle can be costly to repair if you don't keep them in shape. Whether or not you're expecting a cold winter, it's wise to spend some time now on annual maintenance. Here are a few items to check on as the winter months near:

  • Heating and cooling account for almost half of home energy costs. Ensuring that your windows and doors are sealed tight and that you have sufficient insulation will go a long way toward keeping heating bills in check.
  • Have your home heating system serviced by a professional on at least a biannual basis to avoid emergency problems down the road. Drain your irrigation system to ensure that water won't freeze in the lines. If you have an old furnace, consider upgrading to a more efficient model. You may even want to schedule an energy audit to help you identify ways to boost your home's efficiency.
  • Be sure to clean out your gutters. Clogged gutters can cause water to back up against the house, damaging roofing, siding, and wood trim. Debris-filled gutters can also lead to leaks and ice dams.
  • Check your car battery and tires to avoid getting stuck unprepared on the road. Be sure that your car's emergency kit is fully stocked with extra gloves, hats, socks, blankets, boots, washer fluid, a flashlight, a car charger for your cell phone, a shovel, and flares.

Shop smart

Start thinking "holiday" long before the season officially begins. Getting a head start on your planning and shopping is a great way to keep holiday spending (and stress) under control.

  • Buy your gifts early. Making a list well ahead of time and budgeting for each item can help you cut back on spontaneous last minute-spending.
  • Fall can be the best time to purchase certain items. Appliances, patio furniture, jeans, candy, cookware, cars, electronics, toys, and wedding supplies are just some of things that may be discounted from October to December.
  • If you're traveling by air for the holidays, finding affordable flights can be tricky. Start looking for tickets as soon as you decide to travel, and sign up for airfare alert services to stay on top of cheaper flights. In some cases, booking one-way tickets on separate airlines may be cheaper than purchasing a round-trip ticket from one carrier.
  • Make your supermarket points work for you. Many stores let shoppers earn points that they can apply to larger holiday purchases. If you bounce from store to store, weigh the possible benefits of sticking to one during the holiday season.

Max out your retirement contributions

  • Are you taking full advantage of your retirement account? The end of the year is a good time to reevaluate your contributions based on what your employer is willing to match. Check the 2014 retirement plan limits below to ensure that you're making the most of your contributions.
401(k), SAR-SEP, Sec. 457(b), 403(b) Elective Deferral Limit $17,500
Age 50+ Catch-Up for 401(k), SAR-SEP, 457(b), 403(b) $5,500
SIMPLE Elective Deferral Limit $12,000
Age 50+ Catch-Up for SIMPLE IRA $2,500
Traditional and Roth IRA Contributions $5,500
Age 50+ Catch-Up for IRA and Roth IRA $1,000

Invest in your health

  • Don't put off getting in shape until the New Year—start now! Check with your employer and health insurance provider about discounts or reimbursements for fitness and wellness activities. You may be able to take advantage of those programs for end-of-the-year membership dues.
  • Review the balance in your flexible spending account (FSA).FSAs require special attention so that you don't lose unused funds at year-end. Under a new law, companies may allow employeesto roll over $500 in FSA funds to the next year. Be sure to check the rules of your FSA plan and review your available balance.

Take a break

  • More than a third of companies don't allow employees to roll over vacation days into the next year. If this is the policy at your workplace, be sure to take advantage of your vacation days now. Not only will you lose these days if you don't use them, but not taking time off can hurt your productivity and well-being.

Don't make the end of the year more stressful than it needs to be. By checking some items off your list a month or two earlier, you'll be free to focus on what's important during the holidays—spending time with family and friends.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®





Tis the Season for Phishing!

by Bob Donaldson:

With the holiday season upon us, department store and mailroom employees aren't the only ones busy at work; cybercriminals have their sights firmly set on using phishing attempts and other scams to entice you to give up your personal, sensitive information.

Many people shop online, ship items, and travel more than usual during this time of the year, and it's the companies associated with these tasks—like PayPal, Amazon, FedEx, and US Airways—that cybercriminals often target because you're more likely to let your guard down when an e-mail appears to come from a familiar name. These phishing attempts run the gamut from asking you to click a link to access your postal receipt, when what you're really doing is downloading malware onto your computer; to asking you to provide your credit card information for an Amazon purchase you made online, when you're really giving away your card number to a thief.

One recent scam we've seen involves an e-mail that appears to be from FedEx. The message says that your parcel has been received at the post office, but the "postrider" was unable to deliver the package to you. It then asks you to click a link to print your postal receipt, which you should bring with you to the post office to get your package.

Ho Ho Noooooo!!!

What are the chances that the recipient of this e-mail is expecting a package in the mail? According to, 6.5 million package tracking requests are made on a daily basis, and according to a story on, FedEx expects to handle 280 million packages between Thanksgiving and Christmas Day. That's a broad window of opportunity for scammers to perpetrate their crimes.

Protecting yourself from these scams

You can reduce the risk that your personal information will fall into the wrong hands. Take note of the following tips that can help protect you from phishing and other scams—now and throughout the year:

  • If it seems "phishy," it probably is. If you receive an e-mail that appears unprofessional, containing misspellings, spacing errors, or bad grammar, it is most likely fraudulent; real companies take more care in constructing the communications they send to their customers!
  • Do a quick Google search on the subject name or basic details of any unsolicited e-mail. Fraudulent e-mails sent in bulk to numerous recipients are often reported to the FBI, the Federal Trade Commission, or the Internet Crime Complaint Center. If you can't find information this way, contact the company directly through its website by typing in the URL yourself—do not click on any links provided. The company will be able to tell you if the e-mail is legitimate or not.
  • E-mails related to shipments/packages, payment institutions, or airlines should raise a red flag immediately. If you receive an e-mail asking you about payment information for an online purchase you didn't make, or for a shipment/package you weren't expecting, delete the e-mail immediately. If, however, you have purchased something from the company or are expecting a package, proceed with caution. Review the e-mail for errors, check the sender e-mail address to confirm that it's coming from the company itself, and hover over—but do not click on—any links provided in the e-mail to make sure they appear to go to the company's website. When in doubt, call the company directly.

During the holidays—and throughout the rest of the year—a little caution can go a long way toward helping to keep your computer and your personal information safe from cybercriminals. If you have any questions about how we help protect your personal, sensitive information, please contact us at 818-241-9061 ex. 114.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®



Preparing Your College Student for Financial Responsibility

For many parents, the thought of a child heading off to college is both exciting and scary. Whether your child is going away to school for the first time or returning for another year, he or she may need help managing money and credit. This article outlines some tips you can use to prepare your child for the financial independence of the college years.

Get a handle on saving and spending

Creating a budget together is a great way to start the financial conversation with your child.

  • Decide who's paying for what. Discuss what you might cover (tuition, housing, meal plans, and so on) and the expenses you expect your child to pay for (entertainment, travel, and the like). Will he or she use savings to cover these expenses, or will you supply your student with an allowance?
  • Create a working budget. After discussing income and expenses, figure out how much money your child will need while at school. Keep in mind that you may have to adjust this budget during the year.
  • Put it in writing. Use a budget calculator to help you map out a plan, or create your own spreadsheet. As the year progresses, actively record income and expenses so your child can see the impact of saving and spending.
  • Follow up! Staying on budget is easier said than done. Check in with your child periodically to see how he or she is doing.

Weigh the pros and cons of part-time work

Before your child starts looking for a part-time job, be sure to consider all the factors involved.

Possible advantages

  • Your child will gain work experience that can help boost his or her résumé.
  • An on-campus job may allow him or her to network with professors and peers.
  • Taking a job may help your child develop time management and leadership skills.

Possible disadvantages

  • Your child may find it challenging to keep grades up while holding down a job.
  • He or she may have less time for college experiences such as attending sporting events, participating in student activities, volunteering, and networking.

If you decide a job is the way to go, the first step is to check your child's financial aid package to see if he or she is eligible to participate in a work-study program. At the end of the semester, evaluate how the job is going and reconsider the decision if needed. And, of course, make any necessary changes to your student's budget based on his or her earnings.

Compare on-campus and off-campus housing

Where your child lives will be an important part of his or her college experience. Keep in mind that some schools require students to live on campus. If it's an option, however, your child might be interested in off-campus housing. Here are some factors to consider:

  • Extra expenses. If your child lives on campus, cable, Internet, electricity, and other expenses are usually lumped together in a single sum per semester. For an off-campus rental, these bills will most likely have to be paid separately each month. Do the math to see which option is cheaper.
  • Food. Students can usually choose from several meal plan packages, but they can be expensive, especially when you break it down by cost per meal. If your child lives off campus, shopping at a local grocery store and cooking meals may be more cost effective.
  • Location. On-campus housing is usually located within walking distance of academic buildings. With off-campus housing, you may need to factor in the costs of a car, gas, insurance, and parking.
  • Roommates. In an off-campus rental, it's important that your child can rely on his or her roommates to pay their part of the rent and expenses each month. Additionally, if your child won't be at school for the whole year, he or she may need to find a subletter or pay for the months he or she won't be there.

If your child has a choice of where to live, the decision may come down to weighing the freedom of off-campus housing against the convenience of on-campus living.

Talk about ways to build credit

College is an excellent time for your child to start building good credit. Here are some things you can do to help:

  • Explore your child's credit card options. You might consider adding him or her as an authorized user on one of your cards. Or, your child may wish to apply for his or her own student credit card.
  • Stress the importance of being responsible. Be sure your child knows that he or she needs to pay the credit card balance on time each month. Other things to stress: don't exceed the credit limit, don't carry a balance from month to month, and don't use cash advances.
  • Warn against risky credit card programs. Companies often set up booths on college campuses promising free giveaways in exchange for filling out an application. This may seem convenient to a new student, but it can be dangerous. Filling out an application with personal information and handing it to a stranger could put your student at risk for identity theft.
  • Check out your child's credit report. Request a free credit report at and review it carefully for mistakes or suspicious charges, which could be a sign of identity theft.

Setting your child up for success

When it comes down to it, your child's major expenses at college will be tuition and housing. By taking steps to control other expenses and build credit responsibly, your student can lay a solid foundation for financial success later in life.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®



28 APR 2014

Key Points in the President's 2015 Budget Proposal

by Bob Donaldson

On March 3, President Obama announced his $3.9 trillion budget proposal for fiscal year 2015. Although the budget is more of a presidential "wish list" at this point, it includes initiatives that, if passed by Congress, could have a great impact on wealthy and middle-class Americans alike.

Social security claiming strategies

The proposed budget briefly mentions eliminating "aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits." Many industry professionals are interpreting this to mean the end of the file-and-suspend strategy, which allows a social security claimant to file for benefits and immediately suspend them. The claimant's spouse can then begin collecting his or her spousal benefit, while both the claimant and the spouse allow their retirement benefits to grow until age 70 using delayed retirement credits.

It's important to note, however, that the language in the proposal is vague, and it's unclear whether the ultimate target is the file-and-suspend strategy. Additionally, there is some question about how this change would take place—whether through an internal Social Security Administration rule change or an act of Congress. If the latter, it could take a great deal of time to implement, if it passes at all.

Tax cuts for middle-class Americans

The President's budget proposes several tax incentives for middle-class workers, including doubling the maximum value of the Earned Income Tax Credit for workers without children, families with more than two children, and married couples, as well as expanding the child and dependent care credit.

Student loans and grants

The President also proposed student loan forgiveness for qualified taxpayers who borrow through federal programs. Any forgiven loans would be excluded from gross income. Additionally, Pell Grants would be excluded from gross income, provided that the funds are spent according to the program rules.

Loss of tax benefits for high-income individuals

As in past years, the President renewed proposals that would eliminate some tax benefits for wealthy Americans. Specifically, for individuals in the 33-percent tax bracket and higher, and those subject to the alternative minimum tax, the value of certain exclusions and deductions would be reduced to 28 percent. Additionally, the budget reintroduced the "Buffett rule," which would require taxpayers with an adjusted gross income above $1 million to pay a tax rate of at least 30 percent on their income, excluding any charitable giving. Finally, the President proposed extending the temporary exclusion from income for forgiven home mortgage debt to January 1, 2017.

Changes to RMD rules

Another proposed change would waive the required minimum distribution (RMD) rule for individuals whose aggregate retirement plan and IRA assets do not exceed $100,000. Additionally, nonspouse beneficiaries of retirement assets would be required to fully deplete inherited assets within five years. Finally, the President proposed instituting RMD requirements for Roth accounts.

Retirement account changes

Along with the President's proposal to institute RMD requirements for Roth accounts, contributions to those accounts would no longer be allowed after age 70½. Additionally, nonspouse beneficiaries of retirement accounts would be allowed to move funds into an inherited IRA using a 60-day rollover, as opposed to the current direct-transfer requirement. For taxpayers who accumulate retirement benefits over a certain threshold, further contributions and accruals would be prohibited. Finally, small businesses that do not offer qualified retirement plans would be required to offer automatic enrollment in an IRA for their employees.

Changes to estate and gift taxation

The budget proposal seeks to increase the maximum unified estate and gift tax rate from 40 percent to 45 percent and to reduce the exclusion amount from $5 million to $3.5 million for estate and generation-skipping transfer taxes, and $1 million for gift taxes. Additionally, the President proposed redefining the meaning of a gift transfer (by eliminating the present interest requirement) for purposes of the annual gift tax exclusion. The annual exclusion would be modified from $14,000 per donee to $50,000 per donor.

The President also proposed a minimum 10-year term for grantor retained annuity trusts; a 90-year limit on the duration of the generation-skipping transfer tax exemption; modifying the generation-skipping transfer tax treatment for health and education exclusion trusts; and coordinating certain income and transfer tax rules for grantor trusts.

Higher tax rate on investment manager income

As in past years, the President's budget proposes taxing the carried interest portion of fund manager compensation as ordinary income instead of as a capital gain. This would increase the tax rate on that compensation from 20 percent to as much as 39.6 percent.

Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

©2015 Commonwealth Financial Network®



Safety reminder
12 MAR 2014

A Safety Reminder: Protecting Yourself from Data Security Breaches

By Bob Donaldson

One of the biggest themes of the past year has been the scary truth that our personal information may not be as secure as we think it is. Yet, even as headline after headline announces the latest data breach, many consumers are not proactive about protecting their security. A recent Associated Press-GfK poll found a surprising contradiction: While half of respondents said they're "extremely concerned" about their personal data when shopping in stores, and more than 60 percent are worried about shopping online or on a mobile phone, only about one-third have taken steps to protect themselves.

If an event like the breach of 110 million Target customers' information doesn't spur people to take action, what will? Certainly, companies and banks bear a great deal of responsibility for protecting their customers, but there's also plenty that individual consumers can do to safeguard their personal data.

Stay vigilant, every day

You may not be able to prevent a data breach at a major retailer or institution, but, by regularly monitoring your accounts, you can respond quickly if hackers attempt to use your information. Here are some best practices:

  • Keep a close eye on your credit card statements. Frequently checking your purchase history is a simple and effective way to ensure that no one is fraudulently using your account information. (It's especially easy to do when your recent purchases are fresh in your mind.) Be on the lookout for suspicious charges, and note any other account changes you didn't make. One hacker tactic is to change the credit card billing address to get the statement sent elsewhere, allowing the thief to impersonate the victim.
  • Pay attention to "last logged in" info. During each online banking session, check the website's "last logged in" section to make sure you're the only one accessing your account. If you notice any irregularities, report them immediately.
  • Sign up for electronic alerts. More credit card companies are beginning to offer this service, sending customers a text or e-mail when a suspicious transaction is made on their account.
  • Consider a credit monitoring service. Credit monitoring typically costs just $10–$15 per month, but the extra security it offers may be well worth the additional expense. For those affected by Target's data breach, the company is offering a full year of free credit monitoring; visit
    for details.

Adopt safe shopping habits

Whether you're shopping online or in a store, these are good practices to follow:

  • Use cash more. It's simple mathematics. The fewer times you use a credit or debit card, the fewer chances a hacker has to capture your personal information. While using a card is generally safe, if you're worried about data breaches, paying in cash when possible puts the numbers more in your favor.
  • Change your passwords regularly. Be sure to periodically update your passwords on retail sites and other websites that store your personal information. And don't use the same password for every site! Otherwise, if a hacker gets ahold of one password, all of your accounts could be compromised. A password manager like LastPass may be a good alternative to remembering dozens of complex passwords.
  • Think twice before giving out personal information. Many stores ask for your phone number, e-mail, or zip code at the register. Though it may be required when shopping online, you don't have to supply personal information when asked by a store clerk. Declining to provide these details will limit the amount of information about you in the company's database and reduce the number of catalogs and promotional e-mails you receive.

Remember the basics

You've probably heard these tips before, but they remain essential to keeping your personal information safe.

  • Be e-mail savvy. E-mail is a favorite tool for hackers, as well as one of the prime movers for viruses. Here are some pointers to keep in mind:
  • Be wary of links in e-mails that appear to be from your bank. Instead, go directly to the bank's website and follow the instructions there.
  • Never provide personal details over e-mail, including user IDs and passwords, credit or debit card information, account numbers, PINs, and so on.
  • Never open, run, or install programs or files you receive from an unknown source or even unsolicited requests from people you know. Delete suspicious e-mails from your inbox, and then delete them from your deleted items folder.
  • Always log out before leaving an online banking session or a website that stores your personal information. 
  • Enable two-factor authentication on your e-mail and social media accounts.
  • Update your antivirus software. Be sure that the antivirus protection on your computer and other devices is current. Remember, you tend to get what you pay for with free antivirus software. Do some research and talk to trusted professionals about the best solutions for your devices.
  • Shred it! Last but not least, be careful about disposing of documents that include personal information, such as account numbers. Shredding these documents is a key step in keeping your personal information safe.
  • Spread the word!

    Although none of these measures guarantees success, following the guidelines here can only help you safeguard your accounts and your identity. As always, we encourage you to share this article with your family and friends. As data breaches become increasingly common, awareness is a crucial factor in thwarting hackers and protecting your personal information.

    Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

    ©2015 Commonwealth Financial Network®



    04 FEB 2014

    Economic Outlook 2014—Growing Economy, Mixed Markets

    Presented by Bob Donaldson

    Where are we now?

    We start 2014 in a much better place than we did 2013. Employment, both current and trend, is much better. The housing market is much improved. The consumer is much stronger. Finally, the government is much more stable—and in a much better fiscal position. The stock market responded to this ongoing improvement by posting its best year since 1997.

    As we look into 2014, we can expect the underlying economic trends to continue. Growth in most areas has moved back to levels consistent with the mid-2000s, but with a difference. While growth then was based on unsustainable borrowing—by consumers and businesses—growth today is based on actual income growth. This is true in consumer spending, housing, and other areas. Unlike the mid-2000s, when businesses were investing at high levels, which more or less had to fall, business investment today is at low levels—and it will have to increase. Finally, while government spending and hiring were growing substantially in the mid-2000s, and had to fall, they are at low levels today—and they are likely to remain there or increase. The economy, therefore, is poised for continued sustainable growth.

    All things considered, I expect to see real economic growth of around 2.5 percent, with the possibility of stronger performance. With wage income growing at around 4 percent on a nominal basis, business investment growing at around 8 percent, and government spending essentially flat, 2.5 percent appears both reasonable and achievable, and it is actually lower than the growth posted over the past two quarters. Combined with inflation of around 1.5 percent for the year, nominal growth should approach 4 percent—better than we have seen for some time.

    The risks here are largely on the upside. If consumer borrowing were to pick up, spending could grow faster than wage growth. Business investment could finally respond to improving demand and rise more than expected. Local and state governments could increase investment and hiring more than expected.

    Downside risks are more limited and primarily external, with Europe and China remaining as possible negative actors in the world economy and emerging markets showing signs of stress as U.S. interest rates look likely to increase. The major domestic downside risk is of slowing employment growth, of which there were preliminary signs at the end of 2013. Should employment growth drop, the rest of the economy would also slow. Nonetheless, the most probable case remains continued economic expansion.

    The stock market, on the other hand, will face larger challenges this year and may struggle. I expect the U.S. equity markets to end 2014 at about the same level they entered it—around 1,800 for the S&P 500. While earnings will continue to grow slowly, valuations will be adjusted over the year as investors expect lower future growth—and accordingly pay less for stocks. That willingness to pay less will also come because interest rates will rise somewhat over the year, making bonds more attractive as an investment and lowering the present value of the slowly growing earnings stream even more. The lower valuations will offset the somewhat higher earnings, leaving the market essentially flat for the year.

    Unlike the economy, I believe the risks to the market are mostly on the downside. Valuations are at high levels—higher on some metrics than they were in 2007, for example. Profits margins are at historic highs, and the tailwinds that got them there are disappearing. Stock buybacks, which have been responsible for much of the growth in earnings per share, appear to have peaked—and, in any event, have become less effective for every dollar spent as prices increase. And unlike in the real economy, market-related debt has increased back to 2007 levels and above.

    That said, there is also the possibility that retail investors could start to buy in to the market—which could drive prices even higher. This could be considered a "bubble effect" and would drive valuations even farther above historic norms. Although this could certainly happen in 2014, it would only set the stage for a more severe adjustment later on.

    The following commentary will consider the economy and the markets separately; although they are linked, they behave very differently—as we have seen over the past couple of years—and respond very differently to the underlying supply and demand factors. We will look at the economy first and then examine the financial markets in light of our economic conclusions.

    The Economy in 2014

    To best understand the economy, we can break it down into its four components—consumer spending, business investment, government spending and investment, and net exports—and examine each individually. For each component, we will take a look at the real growth and then separately add in expected inflation. Finally, we will check our conclusions against forecasts from other analysts. At the end, we will understand where we can expect growth to come from and why.

    Consumer Spending

    Consumer spending is about 70 percent of the economy as a whole and the single most important determinant of growth. It is composed of wage income, transfer income, investment income, and borrowing. Wages are the largest component of income, at just less than two-thirds, and also the only income source for a majority of families. Wages are also the most variable source of income.

    Growth in wage income depends on three things: (1) growth in the number of jobs, (2) hours worked at each job, and (3) average pay for each hour worked. In other words, even if the number of jobs remains the same, if each worker works longer hours, for example, and/or wages per hour increase, then wage income can rise.

    This is largely what we saw in the early part of the recovery, but now we see all three factors improving. The number of jobs, as shown below, has been increasing at a rate of between 1.5 percent and 1.75 percent per year for the past three years, which is consistent with the level of increase during the mid-2000s.

    The average weekly hours worked at each job has also recovered to levels seen in the mid-2000s, as shown in the following chart. Note the volatility, but also note that the ranges significantly overlap.

    Finally, if we look at the growth of the average hourly wage, we see that it has dropped significantly since the crisis, though it remains positive at around 2 percent per year.

    With all of these factors combined, wage income growth has consistently averaged around 4 percent per year since mid-2010, as shown in the chart below. This chart only shows private employment, so the effective growth rate would be somewhat below 4 percent.

    If we look at actual growth in consumer spending, as shown in the next chart, we can see that it has run between 3 percent and 5 percent and that it has declined in the past year or so.

    If we break down consumer spending, we find that growth in discretionary spending has been at around 4 percent of wage income growth, while nondiscretionary spending has grown by a smaller amount. Since nondiscretionary spending is spending for things we need—like toilet paper, for example—this makes sense because, when their income goes up, few people buy more toilet paper beyond what they need.

    Looking at all of these numbers—past history, as well as most recent experience—an expected growth rate of around 3 percent on a nominal basis seems reasonable for 2014.

    Business Investment

    Business investment, unlike consumer spending, has not shown consistent growth. Although business investment has continued to grow, as the chart below illustrates, it has bounced around much more and has not yet achieved the consistent mid-2000s level.

    Having said that, it does appear that business investment growth is normalizing around the 8-percent to 10-percent level achieved in the mid-2000s and that the recovery is also consistent with the post-dotcom bubble experience.

    Reasons to believe that business investment will normalize and increase are threefold. First, uncertainty continues to decrease, particularly with respect to federal government policies. The recent two-year budget deal has significantly reduced the potential risk from confrontation, and business investment has tended to respond to changes in uncertainty, as shown in the following chart. The negative correlation is quite high, which means that investment rises, with a lag, as uncertainty declines—and you can see that uncertainty, as measured by this index, which includes both policy and economic issues, is indeed declining.

    Second, existing facilities are being worked hard enough to warrant new investment.

    Third, given the reduction in uncertainty, and the rise in capacity utilization, business expectations are also rising, suggesting that businesses expect to actually need that extra capacity. Again, the business expectations survey is highly correlated with investment—and has increased.

    Given all of the supporting evidence, I expect business investment to grow at an annual rate of around 8 percent in 2014. This represents a return to normal levels, typical of the recovery periods after recessions. Sectors that will benefit should include technology, construction (for investment in new facilities), and industrials.

    Government Spending

    In 2013, government spending was cut by a very substantial amount—by many reports, the largest cut since the end of the Vietnam War. You can see the magnitude of the drop, as compared with typical growth over the previous decade, in the following chart.

    The question for 2014 growth is whether the change in government spending will continue to decline, return to positive levels, or hover around zero. To figure this out, we need to separate the federal and state/local levels, which are subject to very different constraints.

    At the federal level, overall spending declined substantially in 2013, but this was due to the legally mandated sequester spending cuts, which, as part of last year's settlement of the "fiscal cliff" debate, were imposed in lieu of a negotiated budget agreement by Congress. This year, on the other hand, we have a budget agreement that keeps spending essentially stable. Federal government spending should therefore remain near current levels.

    State and local spending should also remain around current levels, but here there is a possibility of an increase. As shown in the following chart, spending growth at this level has historically been around 5 percent. Spending has normalized at around 0 percent or slightly above over the past several years, and there is no current suggestion that it will return to the previous levels. As local governments improve their fiscal positions, however, a return to previous levels will become increasingly likely, and necessary, in order to cope with population growth. But, for 2014, state and local governments are still dealing with the aftermath of the financial crisis and adjusting to the emerging pension funding crisis, so I do not expect substantial growth in this item.

    Net Exports

    The final component of the economy, net exports, will most likely continue to bounce around a zero contribution to gross domestic product (GDP) growth, as shown in the following chart.

    Offsetting factors include the decline in petroleum imports, driven by the fracking oil and gas boom, and a probable increase in imports, driven by an improving economy and consumer spending. Overall, imports greatly exceed exports, creating a drag on growth, but this is unlikely to change in 2014.


    Looking at all of the aggregate factors above, we should expect to see real growth in the 2.5-percent to 3-percent range for 2014. I have opted for the lower end of the range because of several signs of possible weakness at the end of 2013, many of which can be seen in the preceding charts.

    With inflation estimated at approximately 1.5 percent, this means nominal growth of around 4 percent. This is consistent with, and in fact a bit below, the past couple of quarters. It is also consistent with, and at the lower end of, the range predicted by a broad spectrum of forecasters. That range runs from 2.5 percent to 4 percent, with estimates I consider most reliable at the lower end.

    This is a healthy growth rate, although slower than we have seen in past recoveries, and should result in continued growth in employment and wage income. Supporting forces include the moderating but continuing housing recovery, relocation of manufacturing jobs to the U.S., slow recovery in the rest of the world, and gradual normalization of government spending at all levels. Risk factors include relapses in China or Europe, political turbulence if Washington, DC resumes confrontation over governing, and possible financial turbulence in the markets, which is the subject of the next section.

    Financial Markets in 2014

    Fixed Income

    As 2013 ended, the Federal Reserve began to taper, or slowly reduce, the bond purchases it makes in order to stimulate the economy. In theory, the taper means two things: (1) the economy is improving and needs less support, in the Fed's judgment; and (2) interest rates are likely to increase as the Fed exits the market. (Presumably, it has been buying at higher prices and lower rates than other market participants.)

    Interest rates increased earlier in 2013, when a taper was hinted at but never actually executed, and ran up again in anticipation of a taper announcement in December. Interestingly, though, since the actual announcement, rates have remained the same or declined a bit, as shown in the following chart.

    Rates seemed to normalize at around 2.75 percent to 3 percent in the second half of 2013, with a tendency toward the upper end of the range when tapering seemed close. If this trend keeps up, it suggests that—with the taper likely to continue, or even accelerate, as the economy improves—rates are unlikely to decrease to previous lows. It also suggests that, as the Fed removes itself further from the markets, the upward pressure is likely to increase.

    Any upward pressure may be limited, however. Although we saw a jump in May and a slow climb back up toward the end of the year, both of those movements (and the actual drop since the taper was announced) seem to indicate that any increase will be gradual, and that there's no suppressed increase lying in wait as the Fed exits.

    Another factor that will act to constrain rate increases is emerging demand from pension funds and other institutional investors, such as life insurance companies. Many of these investors have seen their assets grow substantially with the recent stock market run-up. As they approach fully funded levels, and as rates increase, their ability and need to match their assets and liabilities should result in increased bond allocations. This demand will increase as rates do, and should act as a countervailing force to keep rates at historically low levels. A similar countervailing force will be investors' need to rebalance portfolios by buying bonds, as substantial stock market appreciation has grown the equity allocations past target levels.

    Therefore, I expect rates to continue a slow drift up in response to gradual removal of Fed stimulus, ending the year at around 3.50 percent to 3.75 percent for the 10-year U.S. Treasury bond. This also makes provision for the Fed exiting somewhat faster than is now expected, as the economy continues to improve.

    This slow increase in rates will give markets time to adjust, and 2014 should include periods of both rising and falling rates. With rates still low by historical standards, focusing on credit, such as corporate bonds, should continue to provide incremental returns, although spreads are at low levels.

    The U.S. Stock Market

    There are three key variables here: (1) the growth rate of the economy as a whole, which we discussed earlier, and which will determine corporate revenue; (2) the level and change in profit margins (which, together with the overall economic growth rate, will determine corporate earnings growth); and (3) the level of price multiples (or how much investors will pay for a given level of earnings).

    Corporate revenue. As stated above, I expect U.S. growth to be in the 4-percent range on a nominal basis for 2014. Much of this will come from consumer spending growth, but business investment will also contribute significantly, and government is poised to stop subtracting from growth.

    Aggregate corporate revenue (the top line) grows over time at the rate of GDP growth, so we can reasonably estimate revenue growth at, say, 4 percent. This may even be generous. Looking at the chart below, from Yardeni Research, we see that current revenues are right around the level analysts project for 2014. Using 4 percent seems reasonably fair but isn't a slam dunk. Looking at the past couple of years, we can also see that revenue growth has exceeded 5 percent in only one of the last seven quarters. The average, of around 4 percent, is consistent with expectations.

    Profit margins. If nothing else changes, with revenue growth of 4 percent, we would also see corporate earnings grow at 4 percent, depending on how well the businesses are run—that is, on the profit margins. Profit margins are currently very close to all-time highs, which may limit any future improvements. Just as with revenues, we're also currently at the estimated profit margin for 2014, per Yardeni Research.

    There are reasons to believe that margins might come down, with rising wages being the most prominent, but increasing operating leverage as the economy improves may well compensate for that. Overall, margins can reasonably be expected to stay around current levels for 2014, so overall corporate earnings should grow by about 4 percent of the economy as a whole. The remaining question is, how much will investors be willing to pay for those earnings?

    Price multiples. Looking at the past five years, multiples have bounced between 10 and 15 times forward earnings for the S&P 500. Back at the peak in 2007, they even briefly exceeded 15x. With current prices for the S&P 500 now brushing 15x again, it seems unlikely that multiples will expand even further in 2014. In fact, it's quite possible that valuations could tick down again.

    The Fed and the stock market. An additional supporting argument for the idea that valuations may tick down again comes from the actions of the Federal Reserve. In starting to reduce the stimulus it is applying in the form of bond purchases, the Fed has signaled that it plans to remove itself from the market over the next year or so. As you can see in the following chart, the S&P 500 has largely followed the Fed's bond purchase program. 

    A reduction in the stimulus program should at least reduce the appreciation of the S&P 500, and if the economy strengthens as I expect, the Fed may stop the stimulus program entirely during 2014. Markets typically anticipate the Fed's actions, and this will be another headwind.

    International Stock Markets

    In 2013, as the threat of Federal Reserve tapering grew closer, investor interest shifted from emerging markets to the developed markets. Emerging markets had benefited substantially from low interest rates in developed markets, especially the U.S., as investors chasing returns moved toward what had heretofore been considered riskier assets. This started to change in 2013, as growth slowed around the world, commodity markets (which provide the basis for many emerging economies) softened, and the prospect of higher returns in the developed markets started to become apparent.

    In 2014, the growth advantage that emerging markets were thought to have has largely disappeared, replaced with worry about the financial imbalances created by large capital flows. As U.S. interest rates increase and Europe moves closer to recovery, capital is expected to continue to flow out of emerging markets and back into developed markets, which should create turbulence in both the real economies and financial markets of the emerging countries.

    Comparing valuations between the U.S. and international markets, as in the chart below, we can see that the valuation advantage international markets (both developed and emerging) previously enjoyed over U.S. markets has mostly disappeared. For developed international markets, this largely reflects a normalizing of their economic expectations and should herald more normalized performance in the financial markets. For emerging markets, however, the lack of a discount makes them even less compelling for investors in the face of increasing risk, suggesting that poorer relative performance is likely.

    Source: Bloomberg, Commonwealth


    If the economy continues its accelerating recovery and businesses continue to operate at their current, very high profitability levels, the stock market can be expected to appreciate around 4 percent in 2014—implying a year-end target of 1,880 for the S&P 500.

    This is close to a best-case scenario and is based on earnings growing as expected and profit margins staying high. The reason it may not be a best-case scenario, though, is that with investors shifting from a fundamental to a psychological basis, as I have noted before, we may see multiples pushed higher than 2007 levels. We're already seeing several other metrics—margin debt, for example—pushing above 2007 levels, so there is no reason multiples couldn't do the same. There are upside risks here.

    If the upside does come into play, however, we have to consider where that puts us. Where above we looked at the forward price/earnings ratio, now we will look at the cyclically adjusted price/earnings (CAPE) ratio. The forward P/E ratio is typically the most optimistic, in that it is based on analysts' earnings estimates—which are usually too high. The CAPE, on the other hand, looks at actual earnings and averages them for the past 10 years. The theory is that this normalizes any unusual conditions obtaining at a specific time.

    If we look at the CAPE for the past 10 years, current valuation levels appear reasonable, per the following chart. Only now are we approaching the levels of the mid-2000s.

    Extending the analysis to a longer period, however, shows that in fact current levels are extremely high—except when compared with the past 20 years, as shown below.

    On a longer-term basis, the only times valuations have been close to or higher than current levels occurred in the late 1920s; the mid-1960s, when the Vietnam War drove the economy; the dotcom boom in the late 1990s; and the mid-2000s. Note that all of these periods were driven by excessive accumulation of debt—which is not likely in the next decade. Note also that all of these episodes were followed by significant market declines. Given current valuations, along with high profit margins and slowing earnings growth, the downside risks are more serious, in my opinion.

    In light of my conclusion that the economy is in a sustainable recovery, and that it also seems likely that margins should remain around current levels, valuations are the key variable. Valuations are typically based on the expected level of future growth, with investors willing to pay more for faster growth. As you can see from the above charts, expected future earnings growth (for 2015) looks quite high, and even with strong economic growth, it could be tough to meet. If investors moderate their growth expectations, multiples could get hit.

    Looking at the chart above, you can see that 14x forward earnings is a typical multiple for most of the past five years. Based on an earnings growth rate of around 4 percent, and using a 14x multiple, the indicated year-end target for the S&P 500 would be around 1,750.

    Overall, I suspect the risks to the economic growth rate—and, therefore, for aggregate corporate earnings—are on the upside, while margins and valuations are likely to decline slightly. The indicated target, then, is between the two indicators above: 1,750 and 1,880.

    Looking at the market so far this year, we ran up to 1,800 quickly and have since taken a break. Although we've edged above that level in the past several weeks, the momentum seems to have slowed.

    With the Fed poised to taper its stimulus in the next couple of months, with rates rising slowly, and with most metrics already about as favorable as they can get, I find the notion of continued double-digit appreciation hard to support. In fact, as mentioned above, I believe the market will normalize in 2014. I am therefore projecting a year-end 2014 target of 1,800 for the S&P 500.

    This is not a prediction of a flat, boring market. I believe a sell-off at some point in the year is very possible, as investors reexamine their holdings and process the first step of the Fed's taper process. I also expect investors to reassess the attractiveness of stocks as interest rates rise, which they should during 2014. Finally, I also expect wage growth to accelerate, which should have a negative effect on profit margins, even as it boosts the economy as a whole.

    Current expectations for the market appear entirely too rosy. Too many metrics are too high—in many cases, at or above 2007 levels. This certainly doesn't signal problems in the short term, but it probably does mean future appreciation opportunities are limited. It also does not take into account the possibility—indeed the likelihood—of unexpected negative events, whether they come from China, Europe, the Middle East, or our own Washington, DC.

    Wrapping It Up

    2014 should be the year that the U.S. economic recovery really gets going. The strong and accelerating recovery in 2013 should continue, and with growing confidence and employment levels, it could even strengthen.

    Interest rates should follow the economy up, as an accelerating recovery is complemented by the Fed's continued removal of stimulus from the market. Rising rates should move slowly for the first half of the year, but they may face the possibility of quicker increases in the second half if the Fed responds to accelerating growth by tapering more quickly.

    Financial markets, on the other hand, are priced at high levels and have fully incorporated any reasonable level of economic recovery in current prices. Stocks are overvalued by many metrics, while many of the tailwinds that have sustained earnings growth are going away. Combining the effects of slower earnings growth with the potential for decreases in market multiples, I expect the market to close 2014 at around the same level at which it started—although the potential for a decline at some point during the year is very real.

    Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor's.
    Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation.

    Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

    ©2015 Commonwealth Financial Network®



    Dollar Sign
    01 NOV 2013

    A Financial Checklist You Can Handle

    Bob Donaldson

    With the beginning of 2014 upon us, you may be setting goals and resolutions for the New Year. Starting fresh is always a great feeling, but the scale of what we set out to accomplish sometimes becomes overwhelming as the year progresses. The question is, how can you stay motivated to meet your financial goals in 2014?

    Financial tips for every month

    For many people, checking off items on a long list of to-dos brings a great sense of satisfaction. To help you keep moving toward your goals, we've created a month-by-month checklist of some key financial tasks to consider throughout the year. You might even find that you've completed some of these items already!


    • Establish a will or trust with an estate attorney. Although many people avoid thinking about estate planning, getting your affairs in order is one of the greatest gifts you can give your loved ones. If you've already established a will or a trust, sit down and review the documents with your attorney, making any necessary changes.  
    • Create a budget. Establishing a monthly plan for spending and saving is an excellent way to help keep your finances in check, whether you're reevaluating your financial life or just trying to maintain good habits. 
    • Get ahead on your mortgage. If you can swing it, consider making a full extra payment toward your mortgage principal, which may help shorten the length of your loan. 


    • Review life, home, and auto insurance. It's a good idea to check your coverage regularly. Have you experienced a major life event in the past year, such as a marriage or birth? Any significant changes in your personal life may require you to reevaluate your coverage.
    • Revisit beneficiary designations for life insurance/retirement accounts. Do you need to add a new beneficiary or change a designation? Review your accounts to ensure that the correct people are listed.


    • Check your investment portfolio allocations and current holdings. As your financial advisor, we monitor your investment portfolio and holdings regularly. Nonetheless, you should be aware of where and how your assets are invested. 
    • Explore loans, grants, and other sources of financial aid. There are many ways to finance college and postgraduate education expenses. If you have a college-bound child, it's wise to get an early start researching the options available to you. The government-sponsored website http://studentaid.ed.govis a great place to begin. 


    • Review your online social security statement. Check your benefits information and earning record, and update any outdated personal information, such as your address or phone number.


    • Review 401(k), IRA, and SEP plans. No matter your retirement goals, keeping an eye on your balances and making regular contributions is essential. Depending on your circumstances, consider increasing the amount you contribute. (Retirement planning is equally important for self-employed individuals, who can take advantage of many of the same savings vehicles.) We encourage you to meet with us to discuss the investment allocations in your 401(k) or other plan.


    • Check your credit report. Request your free credit report at and review it carefully for mistakes or suspicious charges, which could be a sign of identity theft. 
    • Shred old documents. Any financial documents that you no longer need, such as bank and investment statements, should be destroyed to ensure that they don't fall into the wrong hands.


    • Research 529 savings plans. Withdrawals from 529 plans are tax-free when used for qualified higher education expenses, making them an excellent way to save for a child or grandchild's schooling.


    • Review online accounts. Take a look at the usernames and passwords you currently use for your online accounts. If the passwords are too basic or if you've held onto them for too long, consider changing them as a security precaution. 


    • Assess your overall investment goals and strategy. It's wise to reevaluate your financial goals every year, especially if you've had any major changes or unexpected events in your life. We can discuss your situation and help you adjust your financial plan accordingly. 
    • Revisit your budget. Look back at the plan you made in January and decide whether to adjust your budget or stick to your current strategy.


    • Contact your CPA for year-end tax planning. Before tax season hits, it's a good idea to speak with a certified accountant about changes in your personal circumstances, expiring tax breaks, and so on.
    • Consider charitable giving. Donating to charity at year-end is a popular way to do good while reaping potential tax deductions. Charitable giving may be another item you wish to discuss with your CPA.


    • Review the balance in your flexible spending account (FSA). FSAs require special attention so that you don't lose unused funds at year-end. Under a new law, employers may allow employees to roll over $500 in FSA funds to the next year. Be sure to check the rules of your FSA plan and review your available balance.


    • Consider refinancing high-interest debt. Consolidating your mortgage, credit card, or car loan payments can make your financial life more efficient (and possibly lower your overall interest rate). 
    • Pay off credit card balances every month. For the New Year, make a resolution to pay off your credit card balances every month, if you're not doing so already.


    Milestone events

    In addition to the monthly tasks outlined here, keep these significant planning milestones in mind as you near retirement age:

    • Age 50: Consider making catch-up contributions to IRAs and qualified retirement plans.
    • Age 55: You can take distributions from 401(k) plans without penalty if retired.
    • Age 59½: You can take distributions from IRAs without penalty.
    • Ages 62–70: You can apply for social security benefits. 
    • Age 65: You become eligible for Medicare.
    • Age 70½: You must begin taking required minimum distributions from IRAs, 401(k)s, and 403(b)s.

    Although this may seem like a lot of information to take in at once, glancing at the checklist each month and being ready for important retirement-related dates can greatly improve your sense of financial security, granting you peace of mind in 2014—and beyond.

    This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.


    To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

    Robert Donaldson is a financial advisor located at Advisory Group West. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (818) 241-9061 or request more information from Mr. Donaldson via our Contact Form.

    ©2015 Commonwealth Financial Network®



    Virtual Afterlife: What Happens to Your Online Presence When You Pass Away?

    By Commonwealth

    Have you considered what will happen to your Facebook, Twitter, and LinkedIn accounts when you pass away?

    Preparing a "digital estate plan" can help ensure that your personal information remains safe and your wishes for your online persona are carried out. This article outlines how to secure your online presence on each of the major social networking sites—Facebook, Twitter, and LinkedIn—as well as on blogs.


    Via the Facebook website, friends and family members can either request to have the deceased's account "memorialized" or removed entirely.

    • Memorializing an account: This option allows the profile to be viewed by those whom the account holder had confirmed as "friends." Friends may post on the deceased's wall, but no one can log into the account once it has been memorialized.
    • Removal: Only immediate family members of the deceased may request the complete removal of a Facebook account.

    Both options require proof of death, which can take the form of an obituary or news article. For more information, see How Do I Report a Deceased User or an Account That Needs to Be Memorialized? on Facebook's website.


    To remove a Twitter account, the following information is required:

    • The deceased's username, or a link to the account profile page
    • Link to the obituary or news article regarding the death

    This information can be e-mailed to or faxed to 415.222.9958. For more details, see How to Contact Twitter About a Deceased User.


    To report the passing of a LinkedIn member, the site's Verification of Death Form must be completed and submitted. The information needed to fill out the form includes:

    • Account holder's e-mail address
    • URL of LinkedIn profile
    • Date of death
    • Death notice

    The form can be submitted through the LinkedIn website or faxed to 402.715.4536.

    Free blog accounts

    The various free blog services have different processes for dealing with deceased account holders. If you use a blog service, check its policies for removing accounts and collect any necessary information (typically, the blog's URL and the URL to the login page, along with your username and password).

    Selecting the executor of your virtual estate

    It's a good idea to leave the information for each account with someone you trust, such as a close friend or family member. Or, you may wish to have your financial professional or attorney oversee your accounts. Whomever you choose should be aware of the specific requirements for each site and your wishes.

    Of course, deciding what will happen to your online presence is just a small piece of an overall estate plan. If you haven't yet considered a will and other end-of-life preparations, your financial advisor can help you make a comprehensive plan to ensure that everything is taken care of for your loved ones.

    ©2011 Commonwealth Financial Network®

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    Glendale, CA 91203


     (818) 241-9061 xt.114

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    ©2010 – 2018  Advisory Group West


    Robert Donaldson (CA Insurance License #0541081) is a Registered Representative and Investment Adviser Representative with/and offering securities and advisory services through Commonwealth Financial Network, Member FINRA / SIPC, a Registered Investment Adviser. Additional advisory services offered by Advisory Group West, a registered investment adviser, are separate and unrelated to Commonwealth.

    This communication is strictly intended for individuals residing in the states of AZ, CA, FL, HI, LA, NY, TX, UT, WA.