$40 Million Pizza - bitcoin and digital currency

On May 22, 2010, the first real world transaction using a digital currency called Bitcoin was placed in Jacksonville, Florida. A software developer used 10,000 bitcoins, which at the time were valued at less than $0.01 each to purchase two pizzas (he found someone online that was willing to buy pizza and deliver it to him in exchange for the Bitcoins). Today bitcoin is trading around $4,000, which puts the value of that transaction around $40,000,000. With the quick rise in price and popularity of Bitcoin, many people have started asking questions about digital currency. Though the idea is still fairly new and the technology behind how it works is beyond my understanding, I want to provide a summary of what digital currency is, how it works conceptually and some ideas to ponder. The overall market capitalization of Bitcoin is around $45 Billion, which may seem like a lot, but with hundreds of trillions in wealth, is actually very, very small. That said, it has become a new means of exchange that is issued entirely without governments or banks. The lack of controls is both appealing to some and extremely risky to others. Skeptics will point out that the currency has no intrinsic value and is simply worth what someone else is willing to give you for it, yet that is the case for any currency (though governments can influence their countries currency value to an extent, i.e. The Federal Reserve controlling the money supply and interest rates in the US). Even gold, which no longer backs US dollars, has very little useful value and is priced on what someone else is willing to pay. There are plenty of examples of currencies experiencing massive changes in value throughout history. One of the most intriguing aspects of Bitcoin is the technology behind it. It is powered by something known as blockchain technology, which is essentially a very secure digital algorithm. The invention of the technology is credited to Satoshi Nakamoto, which is a name used by an unknown person or persons who developed the technology and has since been nominated for a Nobel Prize in Economics. Since the invention of Bitcoin, other digital currencies including Dash, Ethereum and Litecoin have also become fairly popular. This new form of currency is a volatile and intriguing concept. The value has fluctuated greatly and in many ways it feels like the wild, wild west. That said, some retailers are starting to accept payment in Bitcoin. Examples include Overstock.com, Microsoft, and the charity Save the Children. However, Dell, which at one time accepted Bitcoin has stopped. The concept is intriguing and I look forward to seeing how it develops. Could these currencies become part of our financial lives or be a great investment? Maybe, but the risks are huge. Technology can change, governments could try to interfere, the fad could fade, or many other events could happen, any of which could send the value plummeting. I feel there is very real risk and very real potential.      Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Q2 2017 Market review

  Q2 2017 was a good quarter for investors overall with stocks and bonds both domestically and internationally providing positive returns. International and emerging market stocks outperformed the US, and US bonds outperformed the global bond market. For a detailed market overview as well as an article on the effect interest rate changes have on stocks, click here. Planning note: Many investors have held a significant portion of their investments in the US stock market recently and have been rewarded for doing so. It is easy to forget why including international stocks can be valuable as part of a well-diversified strategy. This most recent quarter is an example of why including international stocks can be beneficial, but that is a very short measure. Going back to 1998, international stocks (as measured by the MSCI EAFE Index) outperformed US stocks (measured by the S&P 500) in 8 of 19 years as well as year-to-date. From 2002-2007 international stocks significantly outperformed with a cumulative return of 123.38% vs. 42.45% for US stocks.    Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

The life insurance debate

There are a number of debates that seem to never end within the financial planning community. One of those debates relates to life insurance. Before I get to the thoughts expressed by people on each side, I’ll lay some basic groundwork. What is the purpose of life insurance? Generally speaking, it is to replace income or financial value that would be lost if someone were to pass away. The main use I see is for individuals to purchase coverage as income replacement for those who depend on that income. There is also a need for non-income earners such as stay-at-home parents who provide many services that would have to be hired if they were to pass away. There are other uses as well, but income replacement is the most common. Types of life insurance:Term Life - As the name suggests, term insurance provides coverage for a certain period of time, or term. For instance, a 20 year term policy will provide coverage for 20 years and assuming you outlive that period of time, the coverage ends. The idea would be that you reach a point of financial independence and no longer need the insurance coverage. Term insurance is the lowest cost form of life insurance (other than possibly a group policy through an employer, but I’ll save that for another discussion). Whole (or Permanent) Life - Again, as the name suggests, this coverage is designed to remain in place for your entire life. Since the insurance company knows that one day they will have to pay the death benefit, the coverage is going to cost significantly more. This form of insurance can become complicated very quickly as insurance companies have designed many different products, some offer additional features beyond the death benefit, such as investment and tax benefits. Fans of term insurance will say to buy term insurance for low cost coverage and keep your investments separate, commonly expressed as “buy term and invest the difference”. This is a lower cost and simpler approach that I generally agree with. Those who tend to favor whole life insurance highlight the cash value potential that can build within the policy which you may be able to withdraw or take income in tax preferred ways. Those features sound good, however, they come at a higher cost. My thoughts:For most cases I recommend term insurance coverage. In my experience term works out better than higher cost and more complex whole life policies. Though, there are a few exceptions where permanent insurance can make sense and actually be a very useful tool. Consider permanent life insurance for the following situations (note that it isn’t for traditional income replacement as I had described above): Estate planning – Permanent life insurance can provide tax benefits when coordinated with a well-designed estate plan. With the estate tax exemption for 2017 set at $10,980,000 for a married couple, most families don’t face estate taxes, however, for those who do, the 40% rate can be a killer. Many people with an estate above that amount also own many illiquid assets such as real estate or businesses, so the insurance can provide a second benefit of liquidity in addition to escaping estate taxes (again, when properly coordinated with their estate plan). High income earners – If you find yourself in a high tax bracket and you have already maxed out the tax advantaged savings vehicles available to you such as a 401k, IRA, Roth IRA, SEP IRA etc., and have cash left over looking for a home then a permanent insurance policy may make sense. However, it’s still not a slam dunk decision. There are other investments that can be very tax efficient and avoid the higher cost of permanent insurance. If you are willing to accept potentially low to moderate returns for tax and diversification benefits then you may want to explore a permanent insurance policy. There are many unique financial situations so I don’t claim for this to be an all-inclusive list. However, these are the situations I see most frequently in my practice. If you have any questions or a policy that you’re curious about feel free to contact me for a complimentary review of the policy. Requesting an “in-force illustration” can show how your insurance policy is performing, and provides a good starting point to decide if it’s worth keeping in place. Disclosures:Securities America and its representatives do not provide tax or legal advice; therefore it is important to coordinate with your tax or legal advisor regarding your specific situation.The opinions and forecasts expressed are those of the author, and may not actually come to pass.  Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

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