Jun 062014
 

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Question about investing with HELOC

Today we answer a viewers’ question.

Joe writes, “Have you seen any retirees with paid for homes consider opening a home equity line of credit (HELOC), draw down say 50% of the line and invest same in the market.

The HELOC rates are at historic lows and the interest is deductible.  Could be a 5% plus pre-tax profit/ cash flow spread between the dividend income and interest expense.

Not sure that I want the risk and debt but curious if many people do same.”

With a home equity line of credit (HELOC), as long as you are making your payments, you are fine. The moment you miss a payment, however, all the legal agreement was on the side of the bank and not on the borrower’s side.

HELOC risks

In general we don’t recommend HELOCs for anyone because of four main risks.

  1. Interest rates risk
  2. Market risk
  3. Credit risk
  4. Regulatory risk

Banks and HELOCs

Banks like HELOCs as they have the lowest default rates because people don’t want to leave their homes. From a credit risk, however, they can pretty much put whatever they want into a HELOC agreement. 99% banks will reprice your interest rates once a year or renegotiate it. But if your payments aren’t consistent, they can accelerate this increased interest rates.

How HELOCs can change

In 2008 and the real estate market dropped, many people would go into the bank thinking it would be a rate adjustment only to find the bank wanted extra collateral. Then their HELOC becomes a totally different type of loan.

These four risks can work against can work against you singularly or in combination. Now we are not saying HELOCs are bad. What we are saying is that you shouldn’t borrow against your house to go speculating in the markets. HELOCs are structured for an intended purpose and if you deviate from that purpose, there is more danger than pick up.

More questions

Thank you, Joe, for your great question. We ask all our followers to send us your questions and we will do our best to answer them as soon as possible in an upcoming blog and podcast.
Retirees Investing with HELOC
Greg Powell, CIMA
President/CEO
Wealth Consultant
Email Greg here

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley here

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fi-Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

May 102014
 

We’ve been talking about deflation for a long time and now the media is finally catching on to it as well. However, you will rarely if ever here the Federal Reserve talk about deflation.

The latest issue of The Economist magazine has on the cover “A Billion Shades Of Gray.” In this issue they discuss the global aging population. While it’s good that people are living longer, we need to remember that older people spend less money. Additionally, younger people are also spending less. When people are spending less money, there are fewer consumers and less money out in the economy.

A combination for deflation

In addition to the aging population, technology is also contributing to deflation. Technology is bringing the cost of many products down. Your smartphone and tablet, for example, have dematerialized products like music, books, cd player, alarm clock, etc. The aging population and technology are both are putting pressure on prices around the globe.

Another important fact for investors to consider is that many corporations are also replacing people with technology and therefore not hiring like they use to. As investors we like to see corporate earnings go up because that causes the stock market to rise. If this trend continues however, corporations will be hiring less people, which means more people are out of work which leads to less consumers improving our economy.

A deflation case study

Japan is a great case study for how this combination of events can contribute to a deflationary period. Their baby boom generation is far ahead of us, and the younger generation is not getting married or buying houses because of what they have seen in the generation before them.

What investors need to do

In the big scheme of things this is just a part of market cycles. The key for investors is to know how to maneuver their money in the right asset categories and not get caught up in it.

We could see inflation raise its ugly head in the future but I believe one of the reasons the Fed is not raising interest rates is for the same reason The Economist has it on the cover of this issue.

Staying ahead of the curve

We will be covering more of this as the year goes on. We are dedicated to being ahead of the curve and on the cutting edge of research for our clients. We are constantly thinking about our client’s portfolios as we develop strategies to help give them better returns but also keep them ahead of the game before these trends become a reality.

If you have questions about your own portfolio, I would be delighted to talk with you. Comment below, email me here, or call me at (205) 989-3498.
deflation trend video thumb
Greg Powell, CIMA
President/CEO
Wealth Consultant

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Greg Powell is President and CEO of fi-Plan Partners, an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

Mar 242014
 

Your first move

Tax season is here. If you are an investor, you may be looking for information on how taxes can impact your investments. We encourage our clients to have their CPA contact us so we can work together to develop strategies to keep their taxes down and keep more money in their pockets.

Tax loss strategies

When we are looking at how taxes can impact your investments, we often consider tax loss selling. It’s one thing to have good returns on your portfolio, it’s another to make sure you don’t loose those returns in taxes. There are other strategies that can be implemented but you need to start as soon as possible.

Where most investors fail

The sad reality is that a lot of investors will lament over whether to implement these strategies. They eventually run out of time and their CPA has to file their taxes. This kind of decision really needs to be discussed in the fourth quarter of that year. It is during the fourth quarter when when we are having conversations with our clients about any tax loss selling or other strategies that can be implemented.
How Taxes can impact your investments

What to do now

You might not be able to change how your taxes will impact your investments this year but you can start making plans for 2014. You can begin evaluating where you need to be now so the next time you will be able to keep more of your returns from your investments.

What your financial advisor should do

I am a big believer that financial advisors should not only be doing financial planning, but they also should be coordinating with the CPA of their clients as well as other professionals. It all works together and the sooner you understand that, the far better off you will be in your life to achieving your goals. Give me a call or email me if your advisor is not doing this for you. I would be delighted to talk with you.

Greg PowellGreg Powell, CIMA
President/CEO
Wealth Consultant

Greg Powell is President and CEO of fi-Plan Partners, an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

Jan 132014
 

marketUpdatesImportant investor research for this week:

Intro: Greg Powell, CIMA, President/CEO, Wealth Consultant

    • European economic turnaround
    • Questioning the jobs report

01:00: Franklin Bradford, CMT, Senior Vice President, Wealth Consultant

  • Could the mid-term elections impact the markets
  • The reality of the jobs report
  • Did the cold weather affect the jobs report
  • Important reports to watch this week

2:57: Ashley Page, JD, MBA, Senior Vice President, Wealth Consultant

  • Improvements in economic and business growth
  • What does this tell us for the economic year
  • 2014 economic business forecast

7:20: Greg Powell, CIMA, President/CEO, Wealth Consultant

  • Looking ahead
  • Keeping you informed

The fi-Plan Partners Portfolio Strategies Team

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fi-Plan Partners is an independent investment firm serving its clients across the nation through financial planning, wealth management and business consulting.

Securities Offered Through LPL Financial. Member FINRA/SIPC.

Dec 132013
 

Greg PowellAlthough the markets are doing better and the economy is slowly improving, many investors are afraid something is going to come in and steal their investments. In this video, I discuss what we do at fi-Plan Partners to help alleviate that fear.

Greg Powell, CIMA
President/CEO
Wealth Consultant

Dec 062013
 

Greg Powell, CIMAHow should you evaluate your portfolio in comparison to the record highs of the various stock market indices like the S&P 500 and the DOW? If investors gain a proper perspective on these indices, they can learn much about their investments and how to work towards achieving their financial goals.

Greg Powell, CIMA
President/CEO
Wealth Consultant