The Case of the Unwanted Inheritor

Last month a grandson of one of our clients called me with the sad news that his grandfather had passed away. I knew his health had been fading over the past year, so while I was sorry to hear it, I wasn’t entirely surprised. It was a difficult conversation, as those things are, and the only comfort to come out of it was the fact that the elderly man had prepared for this day through proper planning. By keeping all of his documents current and in good order, he was able to ensure that his assets would pass to his loved-ones according to his wishes.

Surviving the Death of Your Spouse: Advice from a Financial Planner

On July 29, 2011, my father died in a single car accident, leaving my 73 year old mother — and his children and grandchildren — behind. While my mother has a great network of friends, this is a time of change and transition for her. She must get used to cooking for one, being alone in the house, and managing what used to be done by two (while my father was not all that helpful, he did do some things). Fortunately for her, she was already handling the household affairs, so she has a good understanding of the domestic finances. Not everyone is so lucky.

A Mystery Solved: The Case of the Sharpe Ratio

In the December Journal of Financial Planning, Michael Kitces, Sauro Locatelli, and I published a study entitled, “Improving Risk-Adjusted Returns Using Tactical Asset Allocation Strategies.” The title is a mouthful, but we were basically asking if changing the asset allocation of a portfolio can increase your returns relative to the amount of risk that you take, compared to just buying and holding stocks in your portfolio. Around here we call changing the asset allocation “tactical asset allocation.”

Our Journal of Financial Planning Study, Translated into English

Readers who visit the Pinnacle Advisory Group website ( will note that a paper by Solow, Kitces, and Locatelli, entitled “Improving Risk Adjusted Returns Using Market-Valuation-Based Tactical Asset Allocation Strategies,” was published in the December issue of the Journal of Financial Planning (JFP) – the most distinguished journal in the profession. The paper itself is a technical study that may be difficult to read, so this summary is intended for those who might not care to wade through the academic and statistical details. The basic conclusion of the paper was this: By reducing exposure to stocks when their prices are excessive relative to the profits they produce and increasing exposure to stocks when prices are low relative to their earnings, it is possible to systematically improve long-term returns.

A New BMW or One Year of College?

Years ago a friend told me, “Paying for college is like buying a brand new BMW every year, but never getting to drive it.” Not only has it become one of my favorite quotes, but it motivated me to think about how I’d pay for my own children’s college educations. After some quick math, I realized that four years for both my daughter and son — with two years overlapping — would come to 8 BMW’s in six years. If my husband and I were going to be in a position to cover that, I knew we needed to start planning immediately.

Opportunity and Uncertainty in Estate Planning

As part of the sweeping changes that came at the end of 2010, somewhat lost in the federal income tax changes were some significant alterations to federal estate tax rules. As you may be aware, the unexpected happened during 2010 and the estate tax exemption was allowed to go to an unlimited amount. As several billionaires passed during 2010, estate tax rules had a much higher profile and with the federal exemption scheduled to revert back to $1 million with a 55% federal estate tax rate on January 1, 2011, something had to be done. Even though this was the same situation at the end of 2009, surprisingly, Congress did act and rules were changed for 2011 and 2012 with 2010 becoming a hybrid year. This article will discuss what the rules changed to, some planning opportunities and some things to think about beyond 2012.