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Shawn M. Leonard's  Instablog

Shawn M. Leonard
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I became involved in portfolio and asset management on the Registered Investment Advisor platform, growing my private client’s portfolios to over $300 million at both Fidelity Investments and Schwab Institutional Investments. My team also successfully manages assets for a number of financial... More
My company:
Garrison Asset Management
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  • Stocks Up, Let's Talk Fixed Income ETF's
    The first day of August 2010 was great for stocks across the board. The “double dip bears” took a day off, while most of the talking heads spoke about recovery and bull markets. I don't subscribe to either.

    Your focus should not be entirely on stocks; instead you need to spend some serious time getting the most out of the fixed income area of your portfolio.
    We use many different types of fixed income securities to build our client portfolios. However, most investors doing it on their own, can't just call up a bond desk and get what they need. Let's face it; most investors would rather buy a bond fund or ETF to cover their needs.

    This can be dangerous. Many investors become yield hungry, giving up credit quality for big returns. In a matter of minutes they essentially wind up buying a bunch of high risk equities that carry a coupon. For example, the iShares high yield corp bond, (NYSEARCA:HYG) was down (23.89%) in 2008 and was up 40.68% in 2009.  Is that the volatility you want on the fixed side of your portfolio?

    An ETF like (HYG) certainly deserves a home in a lot of portfolios, just in the right capacity. Measuring risk is key. When I look to drive down volatility to increase alpha, I many not look to (HYG) right away.

    When you think of the type of fixed income that typically trades in a more narrow range, you should turn to iShares Agg Bond Index, (NYSEARCA:AGG) up 5.90% in 2008 and 5.13% in 2009 or iShares Intermediate Gov/Credit Bond, (NYSEARCA:AGZ) up 6.02% in 2008 and 4.40% in 2009.  Are these the type of returns you expect when you think of fixed income?

    The story here is that fixed income also comes with its own set of rules. Risk needs to be constantly measured. Whether you use HYG, AGG or any other fixed income vehicle, it's important to understand exactly where they fit and what to expect of them in different economic conditions.

    If you have any questions feel free to send me an email at or give me a ring at 877-442-0042.

    Aug 02 9:58 PM | Link | Comment!
  • Tax Changes for 2011
    The Changing Tax Laws for 2011

    The United States Government has been discussing the details of changing President Bush’s tax cuts from a decade ago for quite some time. Although the actual details of what will change are few at this point, the writing is certainly on the wall. Here are some strategies for the changing tax laws to help you prepare.

    As most of you know, currently, there is no estate tax. This will change with the coming of 2011 and here’s how. If Congress does nothing the estate tax law will lapse and revert back to the pre-2002 law. The law states that each individual has a $1 million estate tax exemption and a graduated maximum tax rate of 50 percent on additional income. In comparison, as of 2009, each individual could shelter $3.5 million worth of assets and the top tax rate was 45 percent - a huge adjustment. Only those on their death bed will be able to fully take advantage of this unprecedented tax hole. However, the healthy still have some options.

    Estate Tax
    Here are a few alternatives that may ease the estate tax burden. Review your assets, investments and your gifting strategy. Right now real estate and certain stocks are at historic lows, meaning your assets may have decreased in value. This downturn has created a great opportunity to gift, especially to your children and to trusts for your children. If you anticipate that their value will recover quickly, this would be a good time to give them away. This way these assets are out of your estate as the economy comes back and as they appreciate in value. For example, if someone owns land in Florida that is worth $100,000 today, but in 2006 it was worth $500,000, giving it away might be a better move than holding it until it grows back to $500,000. The value at the time of death would be part of the taxable estate.

    Generation Skipping Transfer Tax
    There is also something called the Generation Skipping Transfer Tax or GST. This applies to money that someone might leave to a grandchild to avoid taxes that would be applicable if the money had instead gone to a son or daughter. Under current law, there is no GST, so 2010 is the time for people to set up and fund trusts that will last for the lifetime of a child, grandchild or great grandchildren. These are often called dynasty trusts.

    Income and Investment Taxes
    2011 will bring higher taxes in three main areas – income, capital gains and dividends.
    All six of the income-tax brackets are scheduled to rise with the expiration of the Bush tax cuts at the end of this year. However, the Obama administration is expected to reserve the increase to only the two highest brackets - the 32 percent and 35 percent brackets will become 36 percent and 39.5 percent, respectively.

    The long term, capital gains tax will rise from 15 percent to 20 percent. The tax on dividends will rise from 5 percent or 15 percent (depending on your income) to a maximum of 39.6 percent, because it will be treated as ordinary income.
    For many taxpayers, 2011 will be just the beginning. Starting in 2013, more new taxes will be introduced to help pay for the health care reform law. Investment income and capital gains will likely be subject to an extra tax, say experts, so those who ca might want to cash in on extra income in 2012.

    Please call us with any questions at 877-442-0042. Have a great weekend!

    Jul 28 4:08 PM | Link | Comment!
  • Rebalancing: A Necessary Action
    Well, the good news is that we are approaching Dow 10,000. The bad news is that Dow 10,000 may be nothing more than a good rebalancing opportunity. 
    Most of us understand the importance of staying on course with a disciplined long-term investment plan.  Sure, it's fine to set aside some extra cash and try to time the market and make high-risk bets, but for most of us, accumulating or preserving enough wealth to retire comfortably is top priority. 
    It's easy to sit down and create a long-term strategy for the future. Anyone can do it. Just pick a basket of investments and you're done. Whether you are adding to your accounts or drawing income, the markets have their ups and downs and in the end you will be just fine, right?
    If you disagree keep reading.
    Over the next few weeks we are going to focus on several different concepts that are important to consider when managing your portfolio.  Keep in mind that if you are a client, we already take care of this for you.
    Let's start with the most important concept of all - your personal emotions.
    Emotions are bad in the investment world.  Just like most things in life, when you make emotional decisions, the outcome usually ends up being dismal. First and foremost check your emotions at the door before you make your next investment decision. We all know that discipline is key in both life and investing.  If you can't help but second guess and worry about every investment decision you make, I would seriously consider hiring a professional to implement discipline before you time yourself right out of the market altogether.
    One of the hardest concepts involved with disciplined management is the act of rebalancing.
    Who wants to buy stocks like JPM, C, F and many others  at Dow 6,500? Who wants to sell some of those same stocks after a huge run off the bottom? 
    No matter how volatile the market may be, our goal is to remain disciplined and true to your long-term strategy. Believe me- it's ok to sell a portion of your best stocks when they are up. Taking some gains in an effort to remove some of the risk that has been added to your portfolio is not the end of the world, especially in this market.
    I recently spoke to an investor who lost over 50% of his portfolio in 2008. He said his former manager had done very well up to that point. When he started with the manager his objective was 60% equities and 40% fixed. Then as the years progressed and equities delivered favorable gains over bonds his portfolio became over-weighted. Not only that, but as he grew older the portfolio actually began taking on more risk because no rebalancing was occurring - a bad equation. By the time the Dow reached its high in 2007 the client was about 80% equities and 20% bonds. Then the sell off occurred and we all know the rest of this story.
    With the recent rally in the markets this is a vital time to review your portfolio and practice the art of rebalancing.
    Portfolio rebalancing is an important part of sticking to the strategy and achieving financial success. Although it is difficult to reposition your accounts after you have seen a significant increase in your assets, it is necessary to maintain a comfortable level of risk and keep your portfolio in line with your target allocation. Stay disciplined especially in times like these.
    As always, please contact us if you have any questions! You can reach us anytime at 877-442-0042.
    Tags: JPM, C, F
    Oct 14 9:27 AM | Link | 1 Comment
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