January 16, 2025 In Financial Planning

Understanding Different Types of Investment Accounts: Which One is Right for You?

When it comes to investing, choosing the right type of investment account is just as important as selecting the assets to invest in. Your choice of account can impact your taxes, the flexibility of your investments, and how you save for specific financial goals. To make an informed decision, let’s break down the most common types of investment accounts and explore how they work.

  1. Tax-Advantaged Retirement Accounts

Tax-advantaged retirement accounts are designed to help you save for your future while offering significant tax benefits. Here are the primary options:

  • 401(k): Offered by many employers, 401(k)s allow you to contribute pre-tax income, reducing your taxable income for the year. Some employers also offer matching contributions, effectively giving you free money. However, withdrawals are taxed as ordinary income, and early withdrawals before age 59½ may incur penalties.
  • Traditional IRA: Individual Retirement Accounts (IRAs) also allow pre-tax contributions, with investments growing tax-deferred until withdrawal. There are income limits for tax-deductible contributions if you’re covered by a workplace retirement plan.
  • Roth IRA: Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars. The benefit? Qualified withdrawals in retirement, including both contributions and earnings, are tax-free. Roth IRAs are particularly attractive if you expect to be in a higher tax bracket during retirement.
  • Roth 401(k): Combines features of a 401(k) and a Roth IRA. Contributions are made with after-tax dollars, but qualified withdrawals are tax-free.
  1. Taxable Brokerage Accounts

A taxable brokerage account provides maximum flexibility. You can buy and sell a wide range of investments, including stocks, bonds, mutual funds, and ETFs. Unlike retirement accounts, there are no contribution limits or early withdrawal penalties. However, you’ll need to pay taxes on dividends, interest, and capital gains. Taxable accounts are ideal for goals that are not retirement-specific, such as saving for a home, building an emergency fund, or growing wealth.

  1. Education Savings Accounts

If you’re saving for education expenses, these accounts offer tax advantages:

  • 529 Plans: These state-sponsored accounts allow you to invest funds that grow tax-free, provided the withdrawals are used for qualified education expenses like tuition, room, board, and even K-12 costs in some cases.
  • Coverdell Education Savings Account (ESA): Similar to a 529 plan but with more investment options. However, annual contribution limits are relatively low, and income restrictions may apply.
  1. Health Savings Accounts (HSAs)

HSAs are a triple-tax-advantaged way to save for healthcare expenses. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Additionally, after age 65, you can use HSA funds for non-medical expenses without penalties (though taxes will apply). HSAs are only available if you’re enrolled in a high-deductible health plan (HDHP).

  1. Employer Stock Purchase Plans (ESPPs)

Some employers offer ESPPs, allowing employees to purchase company stock at a discount. These can be a valuable way to invest, especially if your employer provides a substantial discount. However, be mindful of concentration risk, as holding too much stock in one company can be risky.

How to Choose the Right Account for You

When selecting an investment account, consider the following factors:

  1. Your Financial Goals: Are you saving for retirement, a home, education, or healthcare? Your goal will often determine the most suitable account.
  2. Tax Implications: Tax-advantaged accounts can help reduce your tax burden, but you’ll need to follow specific rules and contribution limits.
  3. Flexibility: If you need access to your money before retirement, a taxable brokerage account or an HSA may be better options.
  4. Employer Benefits: Take advantage of accounts like 401(k)s and ESPPs if your employer offers matching contributions or other perks.
  5. Income and Contribution Limits: Certain accounts, like Roth IRAs and Coverdell ESAs, have income limits that may affect your eligibility.

Final Thoughts

Understanding the different types of investment accounts and how they align with your goals can help you make smarter financial decisions. For many people, a mix of account types—such as a 401(k) for retirement, a taxable brokerage account for general savings, and a 529 plan for education—offers the best balance of tax benefits and flexibility. Consider speaking with a financial advisor to tailor your strategy and maximize your long-term success. Contact Josh Davis at josh@davisprivatewealth.com to discuss further.

October 16, 2024 In Financial Planning

URGENT for anyone that has an LLC, S-Corp, Partnership, or other Entity

I wanted to share something very important and urgent with all of you. It applies to a lot of you (but not everyone). If you have any ownership over 25% or have any control over an entity (LLC, S-Corp, etc) this will most likely apply to you. This includes entities used as holding companies for real estate and some entities no longer in use.

There is less than 3 months (1/1/2025) before many of us need to file a BOI (Beneficial Ownership Information) Filing before penalties start.

The Corporate Transparency Act (CTA) was enacted on January 1, 2021 as part of the National Defense Authorization Act for Fiscal Year 2021. It represents one of the most significant changes in U.S. corporate law in decades. Here’s a breakdown of the key points regarding the CTA:

  1. Purpose

The Corporate Transparency Act aims to combat money laundering, terrorist financing, and other illicit financial activities by increasing transparency in corporate structures. It mandates that certain companies report their beneficial owners (those who actually control or benefit from the company) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.

  1. Reporting Requirements

Under the CTA, companies are required to disclose detailed information about their beneficial owners. This includes: Full legal name, Date of birth, Residential or business address (not PO Boxes), Unique identifying numbers, such as a driver’s license or passport number

The report must be filed with FinCEN within certain time frames:

  • For new companies (1/1/2024 and newer): 90 days upon formation or registration.
  • For existing companies: Companies formed before the effective date of the regulations (January 1, 2024) have one yearto report. The deadline is coming up on 1/1/2025!
  • For changes: Any changes to the reported information must be updated within 30 days.
  1. Who Needs to Report?

The reporting obligations apply to many U.S. businesses and foreign companies doing business in the U.S. Generally, any corporation, limited liability company (LLC), or similar entity formed in the U.S. or registered to do business in the U.S. must report. However, there are certain exemptions, such for nonprofits and larger companies.

  1. Penalties for Non-Compliance

Failure to comply with the CTA can result in significant penalties, including:

  • Civil penaltiesof up to $500 per day for each day the violation continues.
  • Criminal penalties, including fines of up to $10,000and/or imprisonment for up to 2 years for willful violations or unauthorized disclosures of beneficial ownership information.

If this applies to you (or may apply), then I urgently suggest you reach out to your attorney or CPA to help file this report or discuss it. You can also file it yourself. It takes approximately 10-15 minutes per entity for simple filings but could take longer for more complex ones. Here is the website to file: https://www.fincen.gov/boi

Our firm cannot file these beneficial owner filings for clients (guidance is only for attorneys and CPA’s) but we are here to give general information regarding these filings. There is also something called a FinCEN ID that is recommended to get and use for the BOI filing for the company (or give to the person filing it). A FinCEN ID will save a lot of time if you have multiple entities that need to be filed for.

September 4, 2024 In Financial Planning

Why Your Long-Term Passive Investment Strategy Shouldn’t Change Based on Presidential Elections

Why Your Long-Term Passive Investment Strategy Shouldn’t Change Based on Presidential Elections

As election season approaches, it’s easy to get caught up in the political drama and feel pressured to adjust your investment portfolio based on who you think will win the presidency. However, when it comes to long-term passive investing, this kind of short-term thinking can do more harm than good. Whether it’s a Democrat or Republican taking office, your approach to investing should remain steady and focused on the bigger picture. Here’s why sticking to your long-term passive investment strategy is the best course of action, regardless of the election outcome.

  1. The Stock Market’s Long-Term Growth

The stock market has a proven track record of growth over the long term, regardless of who occupies the Oval Office. While there may be periods of volatility or downturns following an election, the market tends to recover and continue its upward trajectory over time. The S&P 500, a broad measure of the stock market, has grown significantly over the past several decades under both Democratic and Republican administrations. This historical trend highlights that the market’s long-term growth is driven more by the broader economy and corporate earnings than by the political party in power.

  1. Policy Changes Take Time

Even when a new president takes office with a bold agenda, implementing significant policy changes takes time. Legislative processes are slow, and many proposed policies are subject to extensive debate, amendment, or even complete obstruction in Congress. This means that the immediate impact of a new president’s policies on the economy and markets is often less drastic than the campaign rhetoric might suggest.

For long-term passive investors, this slow pace of change reinforces the importance of staying the course. Short-term market reactions to election results are often driven by speculation rather than substantive changes to economic fundamentals.

  1. The Power of Diversification

A core principle of long-term passive investing is diversification—spreading your investments across different asset classes and sectors to reduce risk. This strategy is designed to help you weather market fluctuations, including those that might be triggered by political events. By maintaining a diversified portfolio, you’re better positioned to absorb the impact of any short-term market volatility that might arise during election season.

Diversification allows you to focus on the long-term growth potential of your investments rather than reacting to short-term political events. Over time, this approach has been shown to be effective in achieving steady, reliable returns.

  1. Focus on What You Can Control

In long-term passive investing, it’s essential to focus on the factors within your control: your asset allocation, your contribution rates, and your investment horizon. Trying to predict how elections will affect the market is a form of market timing, which is notoriously difficult and often counterproductive. Instead of attempting to guess the market’s reaction to a new president, concentrate on maintaining a consistent investment strategy that aligns with your long-term financial goals.

By regularly contributing to your investments and staying disciplined in your approach, you increase your chances of reaching your financial objectives, regardless of short-term political changes.

  1. Avoid Emotional Reactions

Investing based on emotions—whether it’s fear of a particular candidate winning or excitement about another—is a common pitfall that can lead to poor decision-making. Emotional investing often results in buying high and selling low, the exact opposite of what long-term investors should aim to do.

Sticking to a passive investment strategy helps mitigate the risks of emotional reactions. By following a disciplined, rules-based approach, you can avoid the temptation to make impulsive changes to your portfolio based on election outcomes or political headlines.

Conclusion: Stay Committed to Your Long-Term Strategy

While presidential elections can create noise and uncertainty in the markets, they should not dictate your investment strategy. The principles of long-term passive investing—such as diversification, focusing on what you can control, and avoiding emotional decisions—remain sound regardless of who wins the presidency. By staying committed to your long-term goals and maintaining a consistent investment approach, you can confidently navigate the uncertainties of election cycles and continue building your financial future.

August 15, 2022 In Financial Planning

I Bonds for inflation hedge

I Bonds – a government bond that is paying a lot more than it usually does

There are positives and downsides to them which I discuss below. I Bonds (letter “I”) are issued directly by the US Treasury and pay interest semiannually based upon a calculation that includes the inflation rate, making them an option for anyone looking for a safe place to store some cash for more than 1 year. In years past they haven’t paid much, but recently with the Inflation rate higher they now pay a very nice rate compared to Savings accounts and CD’s.

Interest Rate

  • From May 2022 – October 2022 they are paying 9.62% annualized (4.81% for the 6 month period).
  • The interest rate is recalculated every May 1st and November 1st. So the second 6 months will pay a different rate than the current 6 months.

Safety

  • I Bonds are backed by the US Government

Tax Benefit

  • You can defer paying taxes on the interest until the bond is cash out in future years.
  • It’s only taxed at the Federal level. So no state income tax (for those living in certain states).
  • May be tax free for college costs in some circumstances (used for dependents, below income limit, purchased in parents name, etc)

Cap

  • You can purchase between $25 up to $10,000/calendar year. You are able to purchase them for yourself, your spouse, any minors you have, in the name of your business, and in the name of a trust. For each of these the limit is $10,000/calendar year, so some of you may be able to purchase more than others (for example: Husband, Wife, & LLC for a total of $30,000)
  • The limits reset in January 2023 at which point you could purchase more.

Term

  • Any I Bond purchase must be held for at least 1 year.
  • If they are cashed out between year 1 – year 5 there is a 3-month interest penalty (last 3 months). Given the current rates, even with the interest penalty it would most likely be a good return.
  • After year 5 there is no penalty and they keep earning interest through year 30.

Where to Purchase

  • Unfortunately, we aren’t able to purchase them inside your investment accounts. I Bonds can only be purchased directly through the US Treasury.
  • Here is the Link to open an account with the US Treasury: Treasury Direct Application where you can then purchase them.

Downsides

  • Locked up for at least 1 year
  • Only purchase through US Treasury. Hassle factor of setting up multiple accounts for each entity (individual, LLC, trust).
  • Capped dollar amounts per year.
  • Unknown future interest rates. Rates could drop back down.
  • Penalty between years 1-5.

I Bonds aren’t right for everyone and may not fit into your financial plan or your liquidity needs but we want to keep you informed so you know what’s available. If you have any questions about I Bonds please let us know at 561-284-8999 or reach out to Josh Davis at josh@davisprivatewealth.com.

December 15, 2020 In Investments, Miscellaneous

Pro Tips for Selling Your Investment Properties

Guest Post by: Advantage Realty Inc.

When they first buy their investment property, most investors know they will eventually have to sell the asset. This is quite normal as most real estate investors will do this at one point or the other. Major reasons why investment property owners may sell their investments are:

  • They want to reap the tax benefits
  • The market conditions are right
  • They want to buy a cheaper property in a more profitable location
  • Selling is part of the investor’s strategy

But regardless of the other reasons for selling an investment property, owners always want to cash out on any gains to the property’s value. In all likelihood, the asset has increased in value since it was bought. And as Advantage Realty Inc. explains, that increase in value can only become tangible cash when the property is sold.

Selling an investment property is the only way to convert its value on paper to cash in the bank. But when selling a property, it is not always certain that an investor will actually get as much money from the sale as the property’s market value suggests.  A lot depends on how the asset is marketed.

In selling your investment property, what are the steps you can take to accelerate the sale and ensure you get the best price for the property?

When trying to sell their properties, most real estate investors take the most comfortable route. They use familiar marketing methods that have been around for the longest time. Although these methods are tried and tested, they belong to a past era and are no longer as effective.

That’s because the environment in which properties are bought and sold has changed. Today, everything is digital and mobile. Investors who know how to deploy modern technology, along with the traditional methods, will sell their properties faster and make more money.

Professional tips for selling your investment property

1.      Write great ad copy

Your copy is what creates a connection between your buyer and your ad. Copy encapsulates every message you try to convey via the various advertising media and platforms that you deploy. That message must be evocative and resonate with your target audience, in order to be able to move them to take your desired action. Creating great copy is the first step to winning quality attention.

2.    Use high-quality videos and photographs

Pictures and videos sell more because they are more evocative. People can relate more to the images and messages these media convey. The audience has less work to do to understand the communication because most of it is explained to them. A video ad can say in ten seconds what your written text cannot say in thirty minutes.

3.    Build your own website

Building a website that is solely dedicated to marketing your property will not cost you much, but it will give you incredible mileage in terms of reach and the breadth of your advertising options. You will be able to dispatch digital marketing tools to greater effect. And through the website, you can hold buyers’ attention fully because there will be no competing properties trying to break their focus.

4.    Use multiple listing service (MLS) listings and free websites

Using MLS listings and free websites provide you with access to a huge market. You can take advantage of the audiences these platforms have accumulated to get your property in front of as many people as possible. But to get the most value from these platforms, it is best to pay for an advert on the platform. A paid ad will help your voice get heard above the noise and single you out as a professional.

5.    Take advantage of referrals

You are often one or two persons away from the person who can buy your property. But as long as there is nothing in it for them, people have no reason to connect you to the high net worth individuals they know. A referral system unlocks the power of your connections. It lets you incorporate real estate agents near and far, as well as, your friends, family, and acquaintances into your marketing network.

6.    Buy social media ads

The people you want to reach are probably on at least one social media platform. But trying to find your buyer on social media is like looking for a needle in a haystack; you may waste a lot of time and energy without results. Paid advertising is a way to unlock the power of social media. Used properly, it will ensure that your ad is delivered to the people who need to see it.

7.    Create a virtual tour

The more information you provide online shoppers about your property, the easier it will be for buyers to make a decision. You want to make sure that only those buyers who are on the verge of buying request a physical walk through of the property. One of the best ways to do this is to make a virtual tour of the property and publish it on various online platforms.

There you go, the pro tips you can follow to sell your investment property in no time!

October 1, 2018 In Financial Planning, Investments

Fee-Only vs. Fee-Based Financial Advice

Fee-Only

Financial Advisors that are Fee-Only are paid directly for their services by their clients. They can be paid either as a percentage of assets they manage, a fixed planning fee, or hourly fees. Fee-Only planners are only paid from their clients. They can charge a one-time fee or an ongoing fee for their services.

Fee-Only advisors have fewer conflicts of interest because they are only paid by the client and their interests are aligned with the client. They only worry about the client’s needs as a result. Fee-Only advisors cannot accept any compensation because of product sales and therefore makes working with them more transparent for clients.

 

Fee-Based

Fee-Based financial planning may sound like Fee-Only but is significantly different. The main difference is that Fee-Based advisors can accept commissions from financial products, annuities, and insurance products that they sell their clients. There tend to be a lot of conflicts of interest for the financial advisor. Fee-Based advisors may do some fixed fee planning but also sell commission-based products alongside the planning fee. There tends to be less transparency with Fee-Based advice.

 

*Davis Private Wealth is a Fee Only Financial Planning firm in Wellington, Florida. As a Registered Investment Advisory firm, we have a fiduciary duty to all of our clients.

September 1, 2018 In Budgeting, Miscellaneous

New Amazon Prime Credit Card!

As I have been meeting with clients lately, I have continuously brought up the Amazon Prime Credit Card that I recently signed up for. I feel that the benefits of this card are fantastic and worth sharing. If you shop at Amazon and/or Wholefoods a significant amount, then you would benefit the most from this card.

Here are some of the benefits of using this card:

5% back on purchases at Whole Foods and Amazon (3% if you don’t have Amazon Prime)

2% back on purchases at restaurants, gas stations, and drugstores

1% on all other purchases

No foreign transaction fees

Here is a link to all the card benefits on Amazon: https://www.amazon.com/b/?ie=UTF8&node=16070413011

I’m anticipating that our family will spend around $12,000 this year at Whole Foods (since this is Melissa’s favorite grocery store😊). So, with 5% cash back we will get back $600 each year versus the 1% we were getting on our previous card. Of course, I advise that you pay off any credit card balances each month.

 

*Financial Planning, Wealth Management, & Investment Management firm in Wellington, FL.

August 1, 2018 In Miscellaneous

Wellington History – A Wealth Management firm in Wellington Florida

Wellington was once all swampland. Things got started in the 1950s when Charles Oliver Wellington, a successful accountant from Massachusetts who graduated from Harvard acquired 18,000 acres of swampland. Mr. Wellington named the land south of Southern Boulevard, and west of 441 “Flying Cow Ranch.” C.O.W. were his initials, and “flying” as he was an aviator. There was even once a landing strip for Wellington’s planes at Flying Cow Ranch Road.

Soon after, legislation was passed by the State of Florida to create the Acme Drainage District. This was designed, in 1953, to provide drainage and flooding measures to make the land more accessible for farming. This would later transform into the Acme Improvement District, adding parks and recreation to its duties.

In the 1960’s parts of Flying Cow Ranch were sold or leased to farmers. 2,000 acres soon became devoted to strawberry patches, even claimed to be the world’s largest strawberry patch. In 1953, there was recorded to be only 100 people residing in Wellington. However, it soon became one of the quickest growing areas in Florida, expanding residential areas, as well as service industries.

Major construction began when 7,200 acres of land were sold from the ranch to the Investment Corporation of Florida (ICOF) in 1972. Another developing company, Alcoa Florida joined ICOF to develop a golf course, the 150 acres Lake Wellington, and the Wellington Club. Next, Gould Florida bought out the project and added the Palm Beach Polo and Country Club, as the chairman of Gould Inc., William Yilvisaker was an active polo player. These developments would have lasting impressions on the culture of Wellington, as it is widely known that Wellington is an international hot spot for Equestrian sports.

Officially, the Village of Wellington was created on December 31st, 1995, and act inspired by a group of zealous Wellington residents that was necessary in order to qualify for state funds. Today, the Village is home to nearly 50,000 residents, offering a unique identity as a home for equestrian, golf, polo, aviation, and more. Wellington offers a friendly charm, full of beautiful neighborhoods, and boasts 11 A-rated Palm Beach County schools. The Village of Wellington’s history is far from complete, as it continues to steadily grow today.

Our firm, Davis Private Wealth, is happy to be located in such a great community as Wellington. We pride ourselves in being one of the premier Wealth Management firms in the Wellington area and all of South Florida. Located right on 441 we are in a great central location with easy access from the turnpike.

July 1, 2018 In Miscellaneous

Hurricane Preparedness

The majority of our clients live in South Florida and so hurricane preparedness is a necessity. Hurricane encounters are inevitable and you want to be ready whenever one occurs. A hurricane is a powerful storm that develops over warm, tropical waters and can sustain wind forces of 39 mph or higher. Hurricanes can bring heavy rains, flooding, and heavy winds capable of damaging property. In Florida, we are especially vulnerable to hurricanes. Hurricane season is roughly from June 1st to November 30th, but hurricanes can arise before or after these days.

1. Check on your insurance. (Months in advance)

  • Verify that you have a Flood Insurance policy.
  • Look over your Homeowners Insurance policy with your agent or with us to make sure your properly covered.

2. Hurricane preparedness is essential. The steps you can take to stay safe include:

  • Create an evacuation route and be ready to leave the area if necessary. Several of our clients stayed in Georgia or North Carolina during 2017 hurricane Irma (https://en.wikipedia.org/wiki/Hurricane_Irma).
  • Locate nearby shelters in case you are unable to evacuate.
  • Note the safest room in your house, preferably with no windows towards the center of the house.
  • Keep important documents in a safe place or upload digital copies.
  • Purchase a generator to use after the power goes out.
  • Create an emergency kit.

3. Your emergency kit should include (from ready.gov). (Weeks in advance)

4. If a hurricane is approaching. (Days in advance)

  • Put up your hurricane shutters, close your shutters, or board your windows.
  • Trim trees and shrubs as well as clear gutters.
  • Bring in outdoor furniture and decorations, these are often thrown around or at least damaged.
  • Fill your bathtub before a storm for flushing and washing only.
  • Fill gas cans for back up gas and for the generator.
  • Be sure to fill your gas tanks on your cars far in advance of an approaching storm, waiting until the last minute can leave you with long lines or no gas at all.
  • Turn on your TV and check the forecast periodically for weather updates and emergency instructions.
  • Charge your cell phone batteries.