About RTJ Financial Management

Rob Jupille, President of RTJ Financial Management, has been assisting individuals and small businesses with their insurance and financial planning needs for the past 20 years. Mr. Jupille started his career as an insurance underwriter with a Fortune 500 company, and was quickly promoted to management, becoming Vice President of Sales and Underwriting. He evolved into advising individuals as a Regional Director of Sales for Foresters, a not-for-profit financial services organization. After 10 years working for others, Mr. Jupille formed RTJ Financial Management in 2000, focused on helping successful individuals achieve their financial dreams. Mr. Jupille graduated in 1989 from the University of California, Santa Barbara with a Bachelor’s Degree in Business/Economics. Mr. Jupille has lectured widely on topics ranging from business formation to effective retirement planning to long-term care insurance at CPA firms, estate planning firms, Fortune 500 companies and non-profit organizations. He has provided financial planning services for, and appeared on, the television show “Pat Croce Moving In”, writes a monthly column for the Santa Monica Daily Press and Below The Line News, and has been featured on both KNX 1070 radio and KCAL 9 News in Los Angeles discussing various financial topics. Mr. Jupille’s electronic newsletter “Money Management for Modern Life”, covers topics as diverse as helping independent contractors manage cash flow, overcoming financial dysfunction, improving credit scores, and the uses of exchange traded funds in a diversified portfolio. When not assisting clients, Mr. Jupille volunteers his time as Vice President of the UCSB Alumni Association Board of Directors, is on the Board of Directors of the Center for Lifelong Learners, and has co-chaired the West Los Angeles Heart Walk for the American Heart Association. He and his wife, Tracie, live in West Los Angeles.

What’s a Terrified Investor Supposed To Do?

The Dow Industrial Average is down more than 35% so far this year, with an almost 679 point drop today alone.  There’s not doubt about it, but this market is in the midst of a full-blown panic.

Stocks are down, bonds are down or barely hanging on, oil and gold are down, real estate is down.  So given all the doom and gloom, what’s a shell shocked investor supposed to do?  Here are few tips to help you ride out the current market.

  • Don’t panic. Now is not the time to sell all your stocks.  If you were going to do that, the time was 12 to 18 months ago.  By selling now, you’ll simply lock in what is still a paper loss.
  • Remember your time horizon. If you’re young, this market will provide a great buying opportunity.  If you’re nearing retirement, you may want to follow the next piece of advice.
  • Scale back your equity exposure. Don’t sell everything, but it would be wise to have a little more cash than usual.  We currently have our clients with a lot more cash than usual so we can start buying again when the panic subsides.
  • Review your asset allocation. Some asset classes have gotten hit harder than others.  Now is a great opportunity to reallocate your portfolio without the tax bite you might get under more normal circumstances.
  • Talk to your advisor. If you haven’t spoken to, or heard from, your advisor, now is the time to be proactive and schedule an appointment to review the above items.  You’ll most likely leave that meeting knowing you’re doing everything in your power to minimize the damage of our current situation.

This has undoubtedly been a brutal market that has tested the stomachs of even the most seasoned professionals.  While you may have to make small adjustments to your current portfolio to reflect current circumstances, remember that your investment portfolio is built for the LONG TERM and that, over time, your patience and fortitude will be rewarded.

House Republicans Need to Get a Clue

Well, as cynical as I am about politics, the Republicans in the House of Representatives just dropped my own cynicism to a historic low.  The House just now FAILED to pass the bailout package that was negotiated over the weekend.  The result?  As this is being written, the Dow Industrial Average is down more than 500 points.

Republicans, who overwhelmingly rejected the bailout package, just had a press conference wherein they blamed not the package itself, but a ‘partisan’ speech given by Speaker of the House Nancy Pelosi that apparently angered some Republicans enough that they voted no, despite previously indicating that they would vote yes.  The bailout package didn’t change, but apparently hurt feelings are enough to change somebody’s mind.  Seriously, a no vote because you essentially got your feeling hurt?  What are we, in third grade again?  Are you so clueless that you truly cannot put aside partisan politics to help this country avoid economic calamity and get back on the road to recovery?

While our economic system is wounded, clearly our political system is completely broken, when a group of ELECTED officials find it impossible to do what’s right for the American public because they got their feelings hurt.

Life on some tropical Polynesian island run by a king is starting to look pretty appealing right about now.

Congress Just Doesn’t Get It

Congress continues to debate the government bailout package proposed by Treasury Secretary Henry Paulson, Fed chair Ben Bernanke and SEC chair Christopher Cox.  In the meantime, the markets are spooked and the credit markets are on the brink of complete collapse.  It seems, as always, that Congress just doesn’t get it.

The Congress may have forgotten (or most may not know) that the Great Depression not caused by the stock market crash of 1929, but by the failure of the Government to provide the liquidity banks needed at the time to keep their doors open and lend money to their customers.  While I’m not saying that we’re on the brink of another Great Depression (I’m an optimist by nature), we’re in a similar credit crunch and failure to act could damage our already struggling economy and add years to the time it will take to recover.

Ron Paul was right in his CNNPolitics.com commentary that this mess was created by artificially low interest rates that magnified the real estate bubble, and while his solution of rolling back stifling laws and regulations, divorcing oursleves of Fannie Mae and Freddie Mac, reducing the Federal buget deficit and reducing regulation will work in the long term, in the immediate term, this bailout is the best alternative we have to stabilize not only the U.S. economy, but the world economy as well.

Congress needs to finally get a clue, quickly put together a proposal with the oversight and CEO restrictions they want and pass the damn bill so the financial markets can return to some form of normalcy.

This Time is Not Different

With the bankruptcy filing of Lehman Brothers and the shotgun wedding between Bank of America and Merrill Lynch, many investors are concerned with the viability of our financial markets.  Oh, how short our memories are.

Ten years ago, in 1998, a hedge fund, Long Term Capital Management, failed, creating market panic similar to what we’re seeing today.  The fear at the time was that, due to the size of the fund and its leverage, having to sell its positions could destabilize the entire financial system.

Similar to today, the Federal Reserve and other large banks worked to minimize the damage from the collapse and the world financial system was ‘saved.’  Not only did the doomsday scenarios fail to materialize, but the stock market went on to log one of the longest bull market runs ever.

The moral of the story is that, altough financial crises like this are scary, even for the professionals, this time is most likely NOT DIFFERENT and our financial system will not only survive, but most likely survive.

Market Euphoria Fades Fast

With yesterday’s announcement that the government would be taking over both Fannie Mae and Freddie Mac, pundits and television talking heads began asking if the move signaled a bottom for both the housing market as well as the stock market.

Well, the market today responded with a resounding ‘NO’ and fell by almost the exact amount by which it rose yesterday.

The government’s move yesterday did have the effect of immediately dropping most mortgage rates by around 50 basis points.  The problem, as I was discussing yesterady with two friends who are mortgage brokers, is that unless lenders are willing to again start lending, the interest rate on loans is largely irrelevant.

Any time there is a bubble in the market, in this case the exceedingly easy access to financing we’ve seen the past few years, and that bubble bursts, the pendulum usually overreacts in the opposite direction.  Qualified borrowers, with high credit scores, low loan to value and adequate cash reserves are still finding it incredibly challenging to get real estate financing.   Not until LENDERS feel that the real estate market has stabilized will they begin to loosen up their underwriting a little allowing the credit markets to return to some modicum of normalcy.

I hope and wish that those pundits from yesterday were right and that we are forming a bottom in the market as it would be nice to be able to give friends, family and clients some good news for a change, but I’m not holding my breath.

The Fed’s In A Tough Spot

The Federal Reserve voted today to leave its federal funds rate steady at 2%.  In addition, in its statement, the Fed gave no real indication of which way rates will go in the future because I’m sure they really don’t know at this point what’s the greater risk … runaway inflation or a severe recession?  Inflation hawks, including Dallas Fed President Richard Fisher, want the Fed to preemptively raise rates to cut off any chance of inflation.  Others feel that by raising rates too soon, any nascent recovery in the credit markets, as well as the broad economy, might be stifled and that leaving rates at current, historically low levels is the prudent course.

It seems at this juncture that with the exception of Mr. Fisher, who cast the lone dissenting vote, the Fed feels that the risks are equally balanced between inflation and recession and that, over time, one clear economic theme will most likely predominate.

If there’s one job I would NOT WANT in this world right now, no matter how much money you offered me, its the head of the Federal Reserve.  Mr. Bernanke and his fellow Fed board members are in a truly tough spot.

Over the last two weeks, we’ve seen some signs that inflation is moderating as the world economy slows.  Oil has come off its all-time high, as have other commodities like corn and copper, in response to what is clearly a slowing world economy.  If those trends continue, in the ensuing weeks that should translate into lower costs for gas, food and other goods as lower fuel and input costs work their way through the system.

While cooling commodity prices are encouraging, the Fed can’t become too complacent.  If they keep rates low for too long real inflation could take root and we’d have a repeat of the 1970’s ‘stagflation’.  It’s a case of ‘damned if you do and damned if you don’t.’

It’s becoming increasing obvious that any economic recovery won’t happen in 2008 and may not happen until mid-to-late 2009 the Fed is taking a prudent course until there is enough evidence one way or the other how to proceed.

Now Is Not The Time To Panic

If you read the newspaper, listen to the radio or watch TV, you can’t help but wonder if our financial system, as we know it, is coming to an end.  With record high oil and gas prices, falling real estate markets and bank failures, it’s no wonder that American consumer confidence is at its lowest level in 40 years.  In fact, many people now seem to be in full panic mode.

Now, however, is not the time to panic.  Why?  For a number of reasons.  First, there are protections in place against the failure of your bank or brokerage company, second, the government is being pro-active to try to prevent a full-scale meltdown and finally, the fact that this market will, as have others, rebound at some point.

Government Protections

Banks

In the middle of the Great Depression, in 1933, the Federal Government created the Federal Deposit Insurance Corporation (FDIC) to protect the depositors who kept money in banks.  The FDIC provides insurance of up to $100,000 per depositor, per bank to guard against bank failure.  In 2006, they increased the protection on IRA’s to $250,000, which is in addition to the basic $100,000 coverage.  Also, with the correct use of trusts, you can increase the insured amounts further.

When a member bank fails, the FDIC steps in to run the bank, ensuring that you will have access to the insured amounts.  That means that your checks won’t bounce (assuming you have enough money to cover them!) and that you’ll have access to your cash.  There may be a short period of disruption, but, if you have deposits under the limits, there’s no reason to go down to the bank and pull your money out.

Brokerage Accounts

On the brokerage side, your investments are protected by the Securities Investor Protection Corporation or SIPC.  The SIPC replaces missing cash and securities from failed brokerage firms.  The limits of SIPC coverage are $500,000, with a maximum of $100,000 for cash accounts.

If you’re sold a stock that becomes worthless, the SIPC won’t step in, however, if a broker steals your money, the SIPC will step in.

Not all brokerages are members of SIPC so you need to be sure to ask your advisor if the brokerage firm they used is or isn’t an SIPC member so you’re ensured that you’ve got coverage.

Current Government Action

The Federal Government is doing as much as it can to minimize the damage.  In order to calm the mortgage markets, which are currently still a large part of the current market turmoil, they have pledged to bail out both the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which provide funding for a huge percentage of home loans in the market.

The stimulus checks issued in the earlier part of this year, were intended to pump some more money into the economy, in an attempt to avoid a recession.  There is some evidence that this is in fact working.

Markets Go Up, Markets Go Down – This One Will Eventually Go Back Up

Investing in the stock market is intended for the long term because over short periods, markets go up and markets go down.  By responding to each market gyration, the average investor almost always gets it exactly backwards.  Their emotions tell them to buy more when the market is up and to sell once the market drops.  Many savvy investors know that what the average investor thinks is, in fact, what’s called a ‘contrary indicator’.  Since most investors get it wrong, the logic goes that when the public is incredibly positive on the market, we’re near a top so the professionals sell, and when average investors are at their most pessimistic, we’re at a bottom, presenting a buying opportunity.

One of the key tenets of successful investing is not to let your emotions drive your investments.  Studies have show, time and again that the important thing to long term growth is not TIMING the market but TIME IN the market.

Now is the time to review your portfolio to ensure it’s still allocated the way you want, take some losses to lower your taxes and position yourself to benefit from the next bull market.

The moral of the story here is to not pay attention to the doomsday scenarios presented by the popular press, make sure that you live within your means and that you maintain a long time horizon for your investment portfolio.  If you do all three of those things, you’ll sleep better and ride out our current economic challenges.

San Diego Aims To Be The First Stupidity and Greed Sanctuary

Reuters news agency today reported that San Diego City Attorney Michael Aguirre had filed suit against Bank of America and it’s Countrywide subsidiary to prevent the mortgage lenders from foreclosing on homes in his city.  He also plans to file similar suits against Washington Mutual, Wachovia and Wells Fargo in the near future.  The state goal is to make San Diego a “foreclosure sanctuary.”

More aptly, Mr. Aguirre should have said that he wants to make San Diego the first “Stupidty and Greed” sanctuary.

For those that aren’t aware San Diego was one of the first markets to experience the run-up in real estate prices and also had some of the highest appreciation rates in the country.  San Diego was also known for the zeal with which it’s residents speculated on the real estate market.  With the credit crisis, San Diego has now lead the market with some of the steepest losses in the country.

As with any speculative bubble, this one was characterized by people taking out aggressive loans, that they probably couldn’t afford, believing that the market would continue to climb at its torrid pace, ultimately allowing them to refinance, take out cash and generally live the good life.  In other words, stupidity and greed took over until the market corrected and those same people were stuck with potentially huge losses.

By suing lenders to prevent them from foreclosing, San Diego has essentially condoned this stupid and greedy behavior and given it its stamp of approval.  While undoubtedly well-intentioned, these lawsuits are encouraging the wrong behavior.  Instead of encouraging people to be accountable for their actions and live within their means, the city of San Diego has essentially told its citizens “It’s OK to take unnecessary financial gambles.  If it doesn’t work out, we’ll bail you out.”

So, if you’re planning on doing something greedy and stupid, move to San Diego so you can find “sanctuary” from your actions.

Media Accountability

The other morning, as I was preparing to go to work, I was watching a local morning news telecast when one of the newscasters, commenting on the IndyMac bank failure, said she thought that our current economic situation was similar to the Great Depression.  I have a bone to pick with non-experts making commentary on a market situation they cleary don’t understand.

First, given the fact that this woman, who shall remain nameless, was under 40 years old, she, like me, has no real idea of what the start of the Great Depression felt like.  Second, with people already nervous about our current economic situation, it’s my opinion that her statement was, to say the least, irresponsible.

The situation at IndyMac bank, after its takeover by the FDIC was chaotic.  Panicked customers lined up at their branches in an effort to get their money out.  News reporters on site made sure to pan through the large crowds and interview those people that were particularly panicked that morning.  Clearly the intent was to throw gas on the proverbial fire, not provide objective analysis.

The local station I was watching reaches hundreds of thousands of viewers (I would presume).  If the actions of these reporters and new anchors resulted in a even a few hundred more people pulling their money out of the bank immediately, ultimately this makes the failure of IndyMac more expensive and that tab, you guessed it, is borne by you, the taxpayers.  Instead of playing up the impending Great Depression crap, these people should have been discussing the exact opposite that, unlike the Depression, we now have have protections in place like the FDIC, that economic theory and governmental oversight skill have improved substantially in the last 75 years and that we haven’t even technically entered recession, let alone Depression.

I’m all for freedom of the press as it’s one of the cornerstones of our society.  What I’m against, however, is irresponsible newscasters, who have no real business making commentary on this situation in the first places, causing additional stress to people and ultimately costing me money.

Oh, by the way, shares of financial companies had their biggest day in 40 years yesterday.

What Is Tax-Efficient Investing?

Have you ever gone to visit your CPA at tax time and found out, at the very last minute that you’ve got a huge tax bill due to gains in your portfolio?  The most likely cause is that your financial advisor didn’t take into account the tax consequences of their portfolio moves, generating a large taxable gain.

The are two ways to combat this problem:  regular tax planning and tax-efficient investing.  Tax planning should be an ongoing conversation with your CPA to avoid having any nasty surprises come tax time.

Tax-efficient investing involves handling your investments to maximize the AFTER-TAX return.  It’s not how much you made, but how much you kept after taxes.  The following are some ways to reduce the tax burden on your accounts:

Hold Onto Your Investments

When you hold an investment less than a year, any gain is taxed just like your regular income.  By holding the investment for at least a year before selling, you reduce the tax rate to (currently ) 15%.  Timing the sale of specific investments to lower that tax rate is critical.

“Harvest” Your Losses

In the second half of the year, as you re-balance your portfolio, you should look to sell positions that have lost money so that loss can offset gains you may have elsewhere.  The idea is “harvest” losses equal to your gains in order to eliminate the taxes due.

Put The Right Investments In The Right Accounts

Use tax-efficient investments, like Exchange Traded Funds (ETF’s) in your taxable accounts and put the higher-tax investments in retirement accounts like IRA’s and 401(k)’s.  The overall effect is that you have, hopefully, reduced your overall tax burden.

On a final note, let me remind you that this blog entry is merely to illustrate the concept of tax-efficient investing and should not be construed to be giving tax advice.  Before undertaking any investment program, consult your wealth manager and CPA as each circumstance is unique.