Hozie Consulting, LLC

09/12/2022

Day 3-4 in Italy- Como and Verenna around Lake Como

10/28/2021

I read a great article today in Yahoo Finance that came from Investopedia about how to use your Health Savings Account (HSA) as an investment vehicle for your retirement. You may want to read the entire article, but to summarize, the HSA may just be the most tax efficient way to save for retirement. You can contribute to an HSA by being covered by a high deductible health insurance plan. First of all , you save on insurance premiums because of the high deductible. You can use those savings and any other pre-tax funds to contribute to the HSA and often employers contribute funds too to your HSA. Your contributions are done with pre-tax dollars. and you are not taxed when your company or any third party ( such as a parent) contributes to your HSA for you. Then you can invest the funds in the HSA by investing in equity and fixed income securities just like you would in your 401K plan or IRA. You can contribute to an HSA up until you become eligible for medicare at age 65. There are annual maximums on the total contributions by all parties that are set by the IRS and those caps are indexed for inflation. Currently the limits are $3,650 for self-only and $7,300 for family plus another $1,000 for those age 55 or older. If you are covered by your spouses HSA, you must have your own HSA for your additional $1,000. Your spouse, assuming they are age 55+,would be limited to total contributions of $8,300. You can use the HSA funds to pay qualified medical expenses (what constitutes a qualified medical expense is dictated by the IRS but is very broad). When you do use them for qualified medical expenses, those withdrawals from the HSA are tax free. So you don't pay tax on the dollars. It doesn't matter whether the withdrawals are paid directly to the medical provider or whether they are paid to you as reimbursements for medical expenses you paid with other dollars. Also, there is no time requirement. So, you can withdraw funds from the HSA to reimburse yourself for medical expenses you paid in previous years with other funds. The expenses just have been incurred after you first started the HSA plan. So, the money can grow in the HSA for many years before you pull it out. If you pull it out of the HSA for non-medical expenses or reimbursement of your medical expenses incurred before you had the HSA, those withdrawals would be included your taxable income for that year plus a 20% penalty. If you die before using all the HSA the funds and you designated your spouse as the beneficiary of the HSA, your spouse can use the inherited HSA funds for their qualified medical expenses. If a non-spouse inherits the HSA, any withdrawals are taxable, but no 20% penalty. I you need help understanding this strategy or the rules surrounding HSA, just contact me at 803-242-1221 or [email protected]

10/25/2021

Are you anxious about investing more of your money in the stock market given that it keeps reaching new highs? Are you waiting for stock prices to fall? According to a research piece I read today by Dimensional Fund Advisors using average annualized returns for the S&P 500 index, the returns after new market highs, were 13.9% 1 year later, 10.5% 3 years later and 9.9% 5 years later. This compares to returns after new market lows which were 11.6% 1 year later, 9.9% 3 years later and 9.6% 5 years later. The article concludes that humans are conditioned to think that after the rise must come the fall, tempting us to fiddle with our portfolio. But the data suggest such signal only exist in our imagination and that our efforts to improve results will just as likely penalize them. If you would like some help with your financial planning including investing or tax strategies, just give me a call at 803-242-1221 or email me at [email protected]. Note that past performance is no guarantee of future results and these returns of the S&P 500 index are for illustrative purposes only. The Index is not available for direct investment and the returns do not reflect the expenses associated with management of an actual portfolio.

10/13/2021

Are you watching investor sentiment and taking the contrarian stance? I believe you should be buying. Here is a link to the CNN/Business Fear Factor. https://money.cnn.com/data/fear-and-greed/. It is showing a relatively low reading which indicates a high level of fear in the market and thus a buying signal. Similarly I saw this morning the results of a survey by the Express newsletter from Investopedia that reported that 34% of the respondents to their newsletter survey believe that the US stock market will experience a 'significant" drop in the next three months. That is up 10% from their last survey in May and it reflects the growing anxiety investors are felling about the stock market given recent volatility and mixed signals in the economy. If you need help investing, please give me a call at 803-242-1221 or contact me by email at [email protected]

Fear & Greed is CNNMoney's investor sentiment tool that comprises of 7 markets indicators.

08/18/2021

People ask me all the time how they should invest their money. My answer is always to focus on diversified asset allocation across multiple asset classes and use the lowest cost investments vehicles to get that broad diversification.

In order to get the broad diversification and exposure to all the asset classes, you need to use mutual funds or exchange traded funds which hold hundreds if not thousands of securities of individual issuers (companies for equities and both companies and governments and other issuers for fixed income). If you are investing in a 401K plan at work, your choices are more limited and normally consist of actively managed mutual funds. If you are investing in an IRA or brokerage account, you have many more investment choices to consider. When you have a choice, my preference is to use passive (also known as index) mutual funds in IRAs and passive (index) exchange traded funds (ETFs) for brokerage accounts because passive funds have less fees going to the investment company. ETFs are more tax efficient than mutual funds and best for taxable brokerage accounts. Many investment companies (e.g Fidelity, Vanguard, etc.) have both actively managed and passive funds. Use the passive funds. I have read numerous studies that demonstrate that over time the higher fees of actively managed funds outweigh any benefits from having a management team pick the individual stocks in the funds versus having a computer select the stocks that follow an index.

So what are the asset categories? The highest level split is among Equity (also called stocks), Fixed Income (also called Bonds) and Cash. Within Equity and Fixed Income broad categories you have sub-categories of US based companies, companies headquartered in Developed Foreign Countries (e.g. Europe, Japan, Canada, Australia, etc) and companies headquartered in Emerging Foreign Countries (China, India, etc). The Equity asset class can be further broken down by Size of Company (Large Cap, Mid-Cap and Small Cap) and by Growth Companies, Value Companies or a Blend of Growth and Value. The Fixed Income Asset Class actually has more asset classes than Equities as that market is much larger.

By far the most important decision is how much of your investments to allocate among equities, fixed income and cash. This decision is mostly based on how much time you expect to hold the funds until you liquidate the investment to cash. For example, someone who is 35 years old and plans on holding an investment portfolio until they start to draw down the investments after age 65 when they retire, has a 30 year investment horizon. For that person, I might recommend 85% equity, 13% fixed income and 2% cash. My general rule of thumb before I consider other things such as their risk appetite or strength of one's income potential from other sources (e.g. job, pensions) is to subtract someone's age from 120 and that is the percentage to be invested in equities. Normally, the amount held in cash is only about 2 to 5% (assuming other cash accounts are maintained for emergency reserves and other specific near term needs such as funding a house purchase or wedding, college tuition, etc. Thus, the rest is allocated to fixed income securities. The expected return on equities is higher than fixed income and cash, but the volatility around those returns is much higher. The longer the investment time horizon, the more likely it is that any downturns in the value of the equities will recover and produce higher returns.

As far as the sub-categories, a general rule of thumb is to allocate as such (60% to US companies, 30% to companies in developed foreign countries (Europe, Japan, Canada, Australia, etc.) and 10% to companies in foreign emerging markets (China, India, etc). I recommend allocating to all companies within these markets based upon their relative size to the total. Don't make the mistake of looking at short-term (less than 20 years) of historical returns and chasing those returns. For example, the large growth companies in the US have had some of the highest returns over the last 10 years, but don't make the mistake of only allocating to that asset class as you may be buying at the end of a cycle. It is possible that smaller companies or companies that tend to provide their return through higher dividends (ie value companies) or companies based outside the US may be the darlings over the next market cycle.

There are many fund management companies that offer funds that target each of the above asset classes funds that combine many of the asset classes. You can even find funds that include all the asset classes. If you have a choice (you may not within a 401K plan), go with the fund that has the lowest net operating cost ratio. Most passive funds with the large issuers have net operating costs of less than .10% per year. Avoid paying any upfront cost (ie loads when purchasing mutual funds). When you purchase ETFs, you probably have to pay a small commission per trade. So, if you are just starting out and investing a small dollar amount, stick with mutual funds, even in brokerage accounts. You can easily get information on all mutual funds and ETFS from Morningstar.com including their asset class and their operating expense ratios.

The key is to start investing early with as much as you can and keep your investments diversified to increase returns over the long run. Also, take advantage of any company matches to your investments. It floors me when I hear that employees on average only take advantage of about one-half of the available company matching funds.

Don't hesitate to contact me to discuss your investments. I am a registered investment advisor and CPA.

08/12/2021

Business meal deductions
The deductibility of business meals is among the most contentious issues in the tax law. You may be aware that since 1994, business meals at home and away from home were deductible at 50% of the cost incurred. However, you may not be aware that business meals purchased from restaurants are 100% deductible for 2021 and 2022. However, there are caveats that must be kept in mind. The rules state that the business meal expense must first meet the gateway tests: (1) the business expense must be ordinary and necessary and incurred in carrying on a trade or business and once you meet those tests the deductibility is only allowed if it further meets the follow (1) the expense is not lavish or extravagant under the circumstances, (2) the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food and beverage; and (3) the food and beverages are provided to a taxpayer or a business associate. The definition of who is a business associate is pretty broad but here it is: Business associate means a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer's trade or business such as the taxpayer's customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective. What is absent from this is providing food and beverage to someone merely to cultivate goodwill for future referrals from that person if you don't ever expect to get any business directly from that person. The other requirement is that in order for the expense to be deductible, the taxpayer must maintain records that support their tax position. Many deductions have been disallowed in Tax Court due to the taxpayer not keeping contemporaneous records to support the business purpose of the expense. In short, business meals must be substantiated in five respects: 1) the amount of the expense, 2) date of the expense, 3) location of the expense, 4) business purpose of the meal; and 5) identification of who was present at the meal. Note that the last two are not found on a receipt or credit card statement. Thus, the best practice is to note the last two items on the back of the receipt and keep the receipt. Another option is to make notes on a monthly credit card statement and keep the statements or include that information on an employee reimbursement request form. For a non-travel business expense you might simply write: John Smith and Mary Smith, potential clients or monthly meeting with employees John Doe and Susy Brown. For a travel related expense, you might just note on the back of the receipt: home office visit or site visit to ABC to deliver proposal. Note that you can never deduct meals where just you attend unless they are travel related and travel means you spent the night to sleep or rest. Thus intown conferences where just you attend the meal are not deductible. So dine with associates, even if you don't pay for their food or beverage.

If you have any tax questions, don't hesitate to contact me.