Tag Archives: gary brooks

Expand investment opportunity with alternatives

Gary Brooks’s monthly column in the Tacoma News Tribune examines alternative investments and their ability to expand the traditional investment opportunity while reducing risk.

You can read it on the TNT web site: http://www.thenewstribune.com/2012/04/05/2096104/do-some-research-when-it-comes.html

Or click on this image to make it larger for easier reading.

~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA

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Why choose a Registered Investment Advisor instead of a broker?

Visit riastandsforyou.com to discover the difference of working with an independent Registered Investment Advisor. RIA firms accept a fiduciary standard to act in your best interest.

A Registered Investment Advisor (RIA) is a professional advisory firm that offers personalized financial advice to its clients.

  • Many independent RIAs work with complex portfolios and address unique needs that require a highly customized level of investment management strategy and consultation.
  • Many independent RIAs are owned by the individual advisors who run them.
  • Many independent RIAs provide advice and services for a fee based on a percentage of the client’s assets.
  • RIA firms are registered with the Securities and Exchange Commission or state securities regulators, are subject to the Investment Advisers Act of 1940, and have a fiduciary duty to act in the best interest of their clients.

Why might an independent RIA be a good choice for an investor?

  • Independent RIAs generally have affiliations with a variety of firms who assist with tax planning, estate planning, money management and more. These affiliations allow them to help their clients with complex financial needs.
  • An independent RIA’s affiliations generally make available a wide universe of products and services to them, so that an RIA can tailor solutions to an individual client’s goals.
  • Some independent RIAs’ compensation is directly related to growing their clients’ assets, which can benefit both the advisor and client alike.

Brooks, Hughes & Jones is a Washington state Registered Investment Advisor with offices in Tacoma and Friday Harbor, WA. The three partners, Gary Brooks, Allyn Hughes and Nancy Jones have each earned the CERTIFIED FINANCIAL PLANNER™ designation.

Learn more about how we help clients manage financial decisions and opportunities at our web site — www.BHJadvisors.com.

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Bonds less incredible than you think

Here is Gary Brooks’s column from the October 5 Tacoma News Tribune.

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GET unit price takes huge leap

As a follow-up to my September 8 column in The News Tribune (see below), here is some more detail about the new unit price to participate in Washington’s Guaranteed Education Tuition (GET)  program.

The 2011-12 purchase price for one GET unit is $163.  One hundred units is the equivalent of one year of tuition at a Washington state university (though the account value can be applied to any accredited institution of higher learning). I was conservative in the article suggesting that the new price would be north of $130, “possibly well beyond.” I didn’t want to present too shocking of a figure and have it turn out to be off base.  I wouldn’t have been surprised by $150 but $163 is a big leap. Of course, the price is dictated by a massive spike in tuition rates at Washington state schools.

Considering that the payout value for participants redeeming their GET units this year is $102.23, the new purchase price includes a 59% premium over today’s tuition rate. And if you buy units with a periodic payment plan that includes a 7.5% program fee, the premium you pay goes up to 66.5% over today’s actual tuition cost.

If tuition costs advanced at 8% per year, catching up with a 60% premium would require six years before you broke even. Therefore, you wouldn’t want to invest after your child was 12 years old if you intended to start redeeming units at 18. If units will be used over four years, you could actually invest beyond 12 and still expect to catch up with the premium before the student graduated. Since Washington state school tuition inflation has been closer to 16% than 8% over the past three years, the breakeven period would come quicker, just a little over three years.

The GET unit price for the 2008-09 enrollment period was $76. In four years, the cost has gone up 114.5%. Over the six years previous to 2008-09, GET units increased in price by just 46.15%.

The biggest challenge to the state will be generating enough new interest in the program so that the funding model remains viable. Investment returns alone will not support continued elevated tuition inflation. Over time, more new participants may be required to provide cash flow for students currently redeeming their units.

If the high price of GET units leads to fewer participants, the programs sustainability will be challenged.

~ Gary Brooks — Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA

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Exit plan a crucial aspect to small business ownership

Gary’s monthly column in The News Tribune was published in today’s (9/3/10) business section.

http://www.thenewstribune.com/2010/09/03/1326289/exit-plan-a-crucial-aspect-to.html#ixzz0yU1OlMta

By Gary Brooks

Business owners by nature are courageous folks who are comfortable taking risks. But there is one thing that seems to commonly invoke fear for them—the exit strategy.

The exit strategy is a critical element of financial security and yet, even many leading edge baby boomers with retirement in sight have no formal idea how they will get the most out of their business.

Business owners often let inertia stall their progress for one of four reasons:

  1. the business defines their life and they can’t imagine a different situation,
  2. they dread what may happen to the business without their guidance and the goodwill they’ve built with customers or clients,
  3. they fear potential conflict in transitioning leadership of the business,
  4. and/or they have anxiety about defining the value of the business and the financial realities it presents in funding the next stage in life.

Any of these concerns, left to linger, can limit the business owner’s options for an acceptable outcome.

THE SOLUTION

Business owners who are most successful with exit strategies have common attributes. They actively plan several years in advance. They perform due diligence with accountants, appraisers and industry experts to accurately value the business. They incorporate business value and transition timing into a personal financial plan. They understand all their exit strategy options, choose the preferred path, and align all decisions with maximizing the probability of success with the chosen strategy.

Whether the business has made a fortune or is just moderately profitable, the most successful transitions follow one of three planned exit strategies—the groomed successor, sale to an unrelated party, or the managed wind down.

THE GROOMED SUCCESSOR

Indentifying new shareholders among family, employees, or even friendly competition, can ease many fears. It allows the owner to preserve what is important to them and presents the least interruption to the business.

It’s not always simple to design an internal transition, but it may be the most satisfying option. The key is to start the grooming process early so that clear expectations and timelines can be defined, including how to structure the financial aspect of the transition. In some cases, successful businesses grow beyond an internal successor’s ability to afford to purchase it.

ACQUISITION BY AN UNRELATED PARTY

The first step in preparing to review offers for the business is to have a strong understanding of its value. When the right measure of value is determined, it’s important to manage the business toward improving that specific measure as much as possible.

The established value, and ultimately, the sale price, can have significant impact on taxes, retirement income, estate planning, and more inter-related elements of the owner’s financial situation. Sudden liquid wealth presents a whole different set of challenges.

THE MANAGED WIND DOWN

If the business is past its prime or in a dying industry, an option is to take as much earnings as possible out of the business as personal income rather than reinvesting in the company. This way, rather than expecting a future sale to generate a lump sum to retire on, the sum can be accumulated over time.

One risk is that this may be a tax-inefficient way to build financial security. Ordinary personal income tax rates would likely be more harmful than capital gains taxes that could be applied to a lump sum or installment plan sale.

A LESS-DESIRABLE OPTION

For too many business owners, it is a fourth option—closure and liquidation—that becomes the default choice. This often happens for reasons outside the owner’s control such as death, disability for themselves or a family member, or a change in demand (profits) due to the economy, industry evolution, and so on.

The best way to prevent settling for the default choice is to identify the facts, get good advice and use both to support a clearly emotional decision.

Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a Registered Investment Adviser in Old Town Tacoma. Reach him at gary@bhjadvisors.com.

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Stocks are undervalued, stocks are overvalued ― depending on direction you look

The significant lack of consensus outlook for U.S. stock markets comes largely from the direction at which differing parties view the market. Those looking forward, basing market valuation on estimated future company earnings believe that markets could be 25+% undervalued.

Those who prefer to use trailing actual figures to evaluate current stock prices, believe nearly the opposite, that the recovery rally went too far and will correct more than the 16% dip in the S&P 500 between April 23 and July 2.

The Bullish View

Jeremy Siegel is a professor and author whose viewpoint is widely followed. He has tracked stock market performance back over 200 years. He believes in reversion to the mean – over time, no matter whether markets race ahead of fair value to overly correct below it, they will self correct and return to long-term mean returns.

In a July 8 interview, he said: “When I draw that line over 200+ years of return data, I find we are about 25% to 30% under trend. But trend lines are only one aspect of it. There has got to be a valuation behind that. That is very much what supports the position that stocks are undervalued. When I look at earnings going forward on the S&P 500, for instance projections for 2010 and 2011, we are looking at either 13-times earnings this year or 11-times next year’s earnings. In this interest rate environment, that is unprecedented and, again, demonstrates around a 25% or 30% undervaluation in the market.”

Siegel goes on to explain that even if he takes a pessimistic view of future earnings that current prices remain undervalued, just not to the same extent.

Jeremy Grantham, a money manager historically bearish in his outlook, leaves open the possibility for stocks to rally strongly. “Despite growing nervousness and a slowing economy, there is still a 45 percent chance, thanks to low interest rates, that the S&P 500 will rise above 1,400 (1,083 on July 21, 29% increase to reach 1,400) by October of next year, accompanied by a speculative spin. High-quality stocks have been cheap for five years, and may spend most of the next several years underpriced, bouncing back up to fair value from time to time.”

The Bearish View

Other analysts and economically-focused investment managers are more pessimistic given the mix of a rear view of real company earnings in tandem with fairly dreadful economic expectations.

Economist and mutual fund manager John Hussman hasn’t found a reason for a promising outlook.

“I continue to urge investors to have wide skepticism for valuation metrics built on forward operating earnings and other measures that implicitly require U.S. profit margins to sustain levels about 50% above their historical norms indefinitely,” Hussman wrote July 19. “I can’t emphasize enough that when you hear an analyst say ‘stocks are cheap based on forward operating earnings’ it would be best to replace that phrase in your head with ‘stocks are cheap based on Wall Street’s extrapolative estimates of a misleading number.’ ”

While Hussman thinks that expectations for 25% U.S. stock market gains are misguided, he does not predict extended negative returns. His forecast in the second quarter outlined a scenario where U.S. markets could log 7% average annual returns over the short-to-intermediate term. While that would be a third lower than long-term market returns, 7% annually will still build wealth, especially in a period where inflation is tame.

Others do leave open significant likelihood of negative returns from U.S., and likely European, stocks.

Yale economist Robert Shiller uses a backward-looking calculation of 10-year average actual net earnings and concludes that U.S. stocks are substantially overvalued.

Everyone is right at some point

For another perspective, consider this graph from Morningstar. It charts collective over or undervaluation of the 1,700 stocks that Morningstar rates. This view is of the past year, suggesting a lightly undervalued market in general. It’s important to remember that individual stocks can get wildly undervalued or overvalued with no relation to the overall market.

What do we think?

The tug-o-war between forward-looking optimists and backward-looking pessimists is at a point where each side maintains a lot of strength. It could be that both sides are right. We may see a lot of up and down moves without a clear winner from either viewpoint.

One may be right in the short term but the other over a more meaningful longer term.

We favor evidence over expectations. That leads us to believe that the U.S. stock market is unlikely to add 25% or 30% to its value in the next year. Multi-national companies able to pay increasing dividends and established emerging markets companies appear most attractive. U.S. Treasuries are least attractive.

While we accommodate for occasional tilts in emphasis within our clients’ portfolios, we still operate from a core asset allocation that is globally diversified. This is the best way to remain aligned with client goals that will endure beyond the uncertainty of today.

– Gary Brooks, CFP®

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Brooks, Hughes & Jones now the only Registered Investment Adviser in Tacoma with 3 CFPs

Money Architects co-author and Brooks, Hughes & Jones partner Allyn Hughes has added the CERTIFIED FINANCIAL PLANNER™ and Chartered Life Underwriter designations to his list of credentials.

Each of these designations reflects an exceptional amount of time invested in education, exams and experience helping clients understand options for how to invest their money, protect their risks and pursue their goals.

Allyn joins Brooks, Hughes & Jones partners Nancy Jones and Gary Brooks as CFP® certificant. This means that Brooks, Hughes & Jones is the only independent Registered Investment Adviser in Tacoma with three CFPs on staff. We work together to provide clients with investment management and financial planning insight from three perspectives for the price of one advisor.

We provide wealth management services for individuals and families with at least $500,000 of invested assets. We limit the size of our client base to make sure that our clients receive adequate attention and access to our best combination of service and insight.

If you are looking for confidence in how your money is managed and comfort with the people who provide your advice, consider what Brooks, Hughes & Jones can do for you.

We help clients grow and maintain financial security in many ways:

  • Retirement income planning (sustainable withdrawal rates, pension and Social
  • Security maximization, required minimum distributions from qualified retirement
  • plans, etc.)
  • Managing Individual Retirement Accounts (IRAs)
  • Understanding small business retirement accounts
  • Planning for IRA rollovers from employer plans (401k, 403b, profit sharing, etc.)
  • Determining college savings strategies
  • Cash flow management
  • Developing strategies to improve generational wealth transfer
  • Identifying charitable giving opportunities
  • Investment management for Foundations and Donor Advised Funds
  • Custom asset protection strategies using life, disability and long-term care
    insurance

In all cases, we adhere to the Ethics and Standards of Professional Conduct adopted
by the CERTIFIED FINANCIAL PLANNER™ Board of Standards
.

Please visit our web site BHJadvisors.com or call 253-534-8888 for more information.

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Think twice before shifting to ‘safe’ investments

Gary Brooks’s monthly column in The News Tribune was published today.

http://www.thenewstribune.com/2010/06/18/1231727/think-twice-before-shifting-to.html

It examines perceived safety of bonds and gold as choices to manage investment risk.

Two notes you might find hard to believe:

  • Since 1945, government bonds have had negative returns in more calendar years (19) than the S&P 500 Index (15).
  • People who invested in gold at its peak in 1980 still have not returned to even on their investment. The inflation-adjusted price of gold today is close to half of its all-time high.

Gary’s past columns in The News Tribune can be found on the Brooks, Hughes & Jones web site www.BHJadvisors.com.

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