Read Brown_September_09_NL.pdf text version

RetiRement AdvisoR

A resource for protecting your income

Tim Brown, President The Viable Group, Inc. A Registered Investment Advisor

September 2009

InvestIng

Zero coupon bonds: Low-risk investment vehicles that can pay off in the long run

ero coupon bonds have been described by some as "long-term bonds on steroids." More accurately, zero coupon bonds are a class of bonds that is bought at a deep discount or at a price lower than its face value (hence their other name, "discount bonds"). They are typically available in denominations of $5,000 face amounts. Unlike regular bonds, which make regular payments (coupons), zero coupon bonds do not pay periodic interest during their life. Instead, the full face value ­ the returns from the compounded interest and the difference between the discounted price of the bond and redemption value ­ is paid in one lump sum at the bonds' maturity date. For example, a bond with a face amount of $20,000 and a maturity period of 20 years may be purchased for about $6,500. At the end of the 20 years, the investor will receive the full face value of $20,000. (This is only an example; investors need to speak with an advisor for an actual rate.) The return is backed by the full faith and credit of the U.S. government, state governments or other government bodies, so they are said to be safe. Corporations also issue these bonds, but such bonds are riskier and therefore offer higher yields. They can be more subject to calls ­ issuers recalling the bonds before maturity. Zero coupon bonds' maturity dates can be long or short term. Long-term zero coupon maturity dates usually start at 10 and can be long as 40 years. The longer the maturity, the lower the price. Because their value can grow to a specific amount on a specified future date, they can be suitable investment vehicles for long-range goals, such as paying for a child's college education or as a source of retirement income. U.S. savings bonds are examples of long-term zero coupon bonds. Short-term zero coupon bonds (which are called bills) have maturities that are typically less than one year, e.g., U.S. Treasury bills. Bills can also be issued by state governments, municipalities and corporations. Zero coupon bonds can be held until maturity or sold on secondary bond markets at any time. The current value of a zero coupon bond before it matures is affected by the fluctuations in the interest rate. When interest rates rise, the value of the bond

Z

will fall and when interest rates fall, the value of the bond goes up. Although no payments are received from zero coupon bonds until they mature, investors may still have to pay annual federal, state and local income tax on imputed or "phantom" interest. However, some states offer zero coupon bonds that are exempt from state and local taxes. The price of zero coupon bonds on the secondary market tends to fluctuate much more than other types of bonds, because they pay no interest until maturity. The value will depend on prevailing market prices, the years remaining to maturity and the creditworthiness of the bond issuer. There is a possibility of capital gain or loss if a bond is sold before it matures. Rather than selling them in the secondary market, financial analysts recommend retaining zero coupon bonds till maturity to get the maximum benefit from these investment vehicles.

aware that they qualify for these write-offs. Consequently, many business owners end up paying more than they owe the government. Here are examples of deductions that are available to the self-employed: · Payments made to 401(k), IRA, KEOGH, or SEP and other qualified retirement plans. · A portion of rent, mortgage payments, utilities and maintenance for businesses operating partially or completely in any part of the owner's home (for example, a room that has been converted into an office). · Cost of toner for printers, reams of paper, shipping expenses, postage, software, pens, pads and other office supplies used directly for business. · Cost of advertising materials for radio, TV, magazines, the Internet and other media. · Cost of cellular and telephone calls made for business purposes. · Cost of the Internet or a Web page for business purposes. There are many other expenses that can be claimed as "business expenses" and are therefore tax-deductible. However, there are various rules that apply to the different deductions and it is important to understand these rules before incorporating them into the tax returns.

80 percent of the hundreds of preventive services included in the study added to the costs. Preventive care doesn't bring down cost because the tests themselves are costly and often lead to more doctor's visits and procedures. A separate study found that preventive services such as measuring the cholesterol level of people at high risk for heart disease would cost almost 10 times as much as the savings. As a result, the country's total medical bill could increase by 162 percent. But even the CBO maintains that there is no reason to abandon preventive measures if the country decides they are worthwhile and as long as the cost is recognized. "Just because a preventive service adds to total spending does not mean that it is a bad investment," CBO Director Douglas Elmendorf said. "Experts have concluded that a large fraction of preventive care adds to spending but should be deemed `cost-effective,' meaning that it provides clinical benefits that justify those added costs."

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.

HeaLtH and WeLL-BeIng

Does preventive care save money?

TV commercial for a new prescription drug for heartburn shows a guy suffering from the condition after eating a chili cheese dog. "Stop eating the chili cheese dog!" responded Jonathan Harris, a managing editor for the philanthropic group Causecast. "Let's put down the chili cheese dog and take control of our health." That, in a nutshell, is the philosophy behind preventive care. Chronic diseases such as diabetes, cancer and heart disease, as well as their preventable underlying causes such as obesity, smoking, alcohol use, poor diet and lack of exercise, account for approximately 38 percent of all deaths in the United States, according to Dr. Susan Blumenthal, former assistant surgeon general. They also account for 75 percent ­ $1.5 trillion each year ­ of U.S. health-care spending. Although prevention has been proven to reduce the incidence of chronic disease, the U.S. government's investment in prevention has remained low. President Barack Obama has said he would require insurance companies to pay for cholesterol tests, cancer screenings, mammograms, colonoscopies, vaccines, and other routine checkups and preventive measures as one of the consumer protections in any health-care reform legislation. Although few would dispute that preventive care saves lives, the Congressional Budget Office (CBO), a nonpartisan agency that estimates the cost of legislation, said expanding the use of preventive measures and screening tests would actually increase medical spending overall. The CBO cited The New England Journal of Medicine 2008 review that found that about

Tim Brown is available to give free, educational financial presentations to your gathering of 10 or more. If your club or group is interested, please call Stephanie at (210) 824-1750.

tax and LegaL

Common mistakes of the self-employed

any self-employed people are do-it-yourself people not only in business but also in paying their taxes. But self-employment tax rules are somewhat more complicated than the rules that apply to the employed. As a result, many commit mistakes that lead to costly fines and penalties from the IRS as well as to paying more than required. The self-employment tax (SE tax), which is filed with the Individual Income Tax (1040) return, is a Social Security and Medicare tax for individuals who work for themselves. It is similar to the FICA taxes withheld from the paychecks of most employees. However, because self-employed individuals are both employers and employees, they are responsible for paying all the FICA taxes. Most people who are newly self-employed forget that they now have to cover both the employer and employee portion of Social Security and Medicare tax. Instead of the Social Security employee-only tax rate of 6.2 percent, the SE tax rate is actually 12.4 percent. The SE tax rate for Medicare is 2.9 percent and not the 1.45 percent Medicare tax rate for employees. Another common mistake made by the self-employed is missing out on legitimate deductions because they are not

M

A

Visit us online at WWW.THEVIABLEGROUP.COM To inquire about a complimentary PERSONALIZED FOUND MONEY REPORT, please call me today at (210) 824-1750.

Tim Brown, President The Viable Group, Inc. A Registered Investment Advisor 8700 Crownhill, Ste 206 San Antonio, TX 78209 (210) 824-1750 [email protected]

Contact Us:

Do you want more information about the topics discussed in this newsletter?

Shawn Beatty 16965 Settle Station Rd Platte City, MO 64079-8324 Mail back to: Tim Brown, President The Viable Group, Inc. A Registered Investment Advisor 8700 Crownhill, Ste 206 San Antonio, TX 78209 Please send me information on these items mentioned in your newsletter:

RetiRement AdvisoR

A resource for protecting your income

Tim Brown, President The Viable Group, Inc. A Registered Investment Advisor 8700 Crownhill, Ste 206 San Antonio, TX 78209

September 2009

PRE-SORTED FIRST CLASS MAIL US POSTAGE PAID LIBERTY MO PERMIT NO. 127 5

**********************3-DIGIT 640 1 Shawn Beatty 16965 Settle Station Rd Platte City, MO 64079-8324 *640798324656*

I would like more information about Zero Coupon bonds. I would like more information about tax mistakes by the self-employed. I would like more information about the true cost of preventive care.

Refer us to your friends! I think these people would like to receive your newsletter and an invitation to your next public presentation: Name Address Name Address Name Address

Thank you for the referral!

Information

2 pages

Report File (DMCA)

Our content is added by our users. We aim to remove reported files within 1 working day. Please use this link to notify us:

Report this file as copyright or inappropriate

1340033


Notice: fwrite(): send of 199 bytes failed with errno=32 Broken pipe in /home/readbag.com/web/sphinxapi.php on line 531