by Glenn J. Downing, MBA, CFP®

In this post I’m tackling a tax topic: The difference between ordinary income taxation and capital gains taxation. What’s the difference and why is it important to know? One word: taxes.

The IRS taxes your income, as you know, but it also taxes profits. If you buy a stock for, say, $100/share, and then sell it for $120/share, you have a $20 gain which is taxable. The original $100 purchase price is what’s called your basis in the stock. Basis is increased by sales taxes paid on the item, any legal fees associated with its purchase – even inbound freight costs. When you sell at a profit, you want your basis to be as high as possible, to reduce your taxes on the gain.

A Capital Gains Taxation Example

Let’s look at how that $20 gain is taxed. It all depends upon your holding period for the asset – how long you owned it. If you held the asset for more than one year, then it is taxed at a capital gains rate. That rate...

by Glenn Downing, MBA, CFP® 

 In a previous entry I discussed the difference in taxation of capital gains property vs. ordinary income property. That piece discussed what happens on your form 1040.  This piece looks ahead to your eventual mortality.  What happens when you die and bequeath these assets to your heirs?

A Step-Up in Basis Example

Previously I used the example of a stock that I bought at $100. Now say I leave it to my daughter at my death, and it is trading at $120 on the day I die. How is she taxed? Since stock is capital gains property, she gets a step up in basis to the date of death value. This means that she does not inherit my original basis of $100 – on the date of my death the stock is worth $120, so $120 becomes her new basis. That $20 gain is therefore never taxed! She could turn around and sell the stock the next day for $120 and have no taxable event. If she sold it two months later for $130/share,  she'd have a $10 long...

by Jonathan G. Cameron, CFP®

An important financial concern that we often hear from clients is, “How can I improve my credit score?” First of all, I have to give a quick disclaimer that our company, CameronDowning, is not a credit repair or debt consolidation service. Our goal is to arm you with the education you need to establish a strong financial foundation. Consequently, this often includes advice on how to raise your credit score.

If you’re considering buying a home, taking out a loan, or you’re getting yourself organized after a season of personal financial challenges, you understand that your credit score may determine what you can and cannot do in life.

The most widely used credit score are FICO scores. FICO score and credit score are often used interchangeably. FICO is an acronym for the Fair Isaac Corporation. Founded by William Fair and Earl Isaac in the late 1950s, they developed a mathematical algorithm that predicts consumer behavior,...

by Jonathan G. Cameron, CFP®

Isn’t it funny that we are expected to make the biggest decisions of our lives when we are young? 

We get married, we pursue a career path, maybe have children. We have to make quite a few decisions that will affect us the rest of our lives and determine our future trajectory. The decisions we make now can lead to heartache and loss, or security and success down the road. Some of us are fortunate to have parents to steer us in a good direction, while others lean on friends, extended family, or (gasp!) blogs. When to start investing for the long-term is also part of this equation.

When to Start Investing? The Answer Could Mean Millions.

Sometimes pure inertia delays our decision-making process.  We know we need to save for the future.  We know we need to save for retirement.  But that is so far away!   And if we start off on a bad foot we may choose a bad investment, establish a short-sighted plan, and potentially...

By Glenn J. Downing, MBA, CFP®

With this blog post I’d like to share some thoughts about investment risk tolerance.

Generally, we think about risk as a bad thing – something we want to avoid. “I won’t drive faster and risk a speeding ticket”, and, “No, baby, that dress doesn’t make you look fat,” are two examples of conscious choices made to avoid unpleasant consequences.

The context for risk in this post is investment risk – I put money out there in some type of vehicle, and expect it to be returned to me, and then some. And then some can be interest, dividends, capital gains, and lottery winnings.

The risk return spectrum looks something like this:

• If I keep money under the mattress, what is my expected return? Zero. It is not invested.
• If I want safety, and put my money in the bank, what is my risk? Next to nothing. But the return is also minuscule these days.
• I can make a little more money in bonds with some risk to my...

By Glenn J. Downing, MBA, CFP®

I’m here to tell you once and for all.

Yes, I know . . . this is a little off the beaten path for me. 

The World is Not in Good Order

I usually write about financial topics, given that I’m a professional financial planner.  But occasionally some NIGO aspect of the world (that’s Not in Good Order, in my professional parlance) comes to my notice with such frequency that I just can’t take it anymore.  Sort of like the crescendo in Lucy in the Sky with Diamonds.  It builds and builds, and you know that a climax is coming. 

Well, today it peaked, and I’m seized with great generosity of spirit (and indeed, humility) to set the English-speaking world right. 

Ready?  Here it is:  data is the plural of the singular datum.  There is your pronunciation:  dāta with a long a.  Not dăta with a short a.  Never Ever EVER. 

Now that that’s settled, let’s turn...

By Glenn J. Downing, MBA, CFP®

Channeling David Letterman and all those Top Ten lists. I thought it might be fun to compile one of my own. To wit:

The Top Five Mistakes People Make With Their Money

This is a list compiled after about 25 years of experience. 

Mistake #5

You eat out way too much. This is what your kitchen is for! If you get a sandwich and a coffee in Miami on a daily basis, you’ve spent ($10/day * 20 days) $200 in a month! How about all that fast food? I’m seeing families who spend several hundred dollars each month eating out, when a little planning and Publix time could save much of that money and everyone would be healthier and richer for it.

Mistake #4

You don’t have enough life insurance. What happens if you get hit by a bus? Are your existing savings enough for your surviving spouse and children? Term insurance is relatively cheap and easy to obtain. No excuses. See Mistake #5.

Mistake #3

You don’t have an emergency fund....

By Glenn J. Downing, MBA, CFP®

Picture the scene: My wife has a group of friends visiting. I come home from work, greet everyone, and have a glass of wine to be sociable. At some point I announce that I’ll retire to my study for the evening. What does that verb mean – to retire? It means to go away or apart; to withdraw; to be in a place of privacy or shelter. It can also simply mean that I’m going to bed for the night. It isn’t until about three generations ago that the definition expanded to mean cessation of paying work.

Retirement, as we currently think of it, is a relatively new concept.

Up until WWII people simply worked until they could no longer do so. Retirement, as we currently think of it, is a relatively new concept. When extended families lived together on the farm, everyone worked and contributed in some way. When the same families moved to the cities at the beginning of the last century, it was the same way. So how did our current concept...

By Glenn J. Downing, MBA, CFP®

We usually understand the time value of money in two contexts: the growth rate of an investment, and the inflation rate.   Nonetheless, the TVM is a topic that should be understood by everyone serious about financial planning.

Sketch Out a Timeline

To conceptualize this, sketch out a timeline of your life. At the leftmost point is your date of birth. The rightmost point is your date of death. In between, mark your retirement date, and today’s date. If you are not yet retired, then the time value of an investment pertains to you in particular.

TMV: Investment Growth Rates

Let’s look at investment growth rates.  On your timeline you have 10 years before your retirement.  You're interested in projecting out your IRA balance over these 10 years, assuming an 8% annual rate of return, compounded monthly. Your current balance is $250,000, and you are depositing $300/month – less than what is permissible by law. I make...

by Jonathan G. Cameron, CFP®

By early 2015, the amount of outstanding student loan debt in the U.S. exceeded $1.2 trillion. What a staggering number! Tens of millions of young professionals carry significant student debt balances. The payments may be stiff. It can take years to pay off many of these loans. Consequently, other financial priorities get postponed. Commonly we see saving for retirement pushed ahead into the future. Does this describe you?

There is Some Good News

The good news is, there are federal programs for income-based repayment and even loan forgiveness. Before you get too excited, though: only certain kinds of federal student loans qualify. These include Stafford and Grad PLUS loans. Each year, program participants verify their income and family size. The loan servicer then calculates a new required monthly payment amount. Loan payments go up or down as appropriate. The intent is to assist borrowers in making on-time payments. These payments, however, may...