This article was written by Edward Jones. For further information, contact local financial advisor (and Capitol Hill resident) Skip Thompson at 202-223-1179 or [email protected].

We’re at the end of another school year. If you have younger kids, you might be thinking about summer camps and other activities. But in the not-too-distant future, your children will be facing a bigger transition as they head off to college. Will you be financially prepared for that day?

A college education is a good investment – college graduates earn, on average, $1 million more over their lifetimes than high school graduates, according to a study by Georgetown University – but a bachelor’s degree doesn’t come cheap. For the 2015-2016 school year, the average expense – tuition, fees, room and board – was $19,548 at a public four-year school and $43,921 at a four-year private school, according to the College Board. And by the time your children are ready for college, these costs may be considerably higher, because inflation is alive and well in the higher education arena.

Your children may be eligible for some types of financial aid and scholarships. But even so, you may want to consider some college-savings vehicles – and one of the most popular is a 529 plan.

A 529 plan offers a variety of benefits, including the following:

• High contribution limits – A 529 plan won’t limit your contributions based on your income. In all likelihood, you can contribute as much as you want to a 529 plan, as many states have contribution limits of $300,000 and up. And you can give up to $14,000 ($28,000 for a married couple filing jointly) per year, per child, without incurring any gift taxes.
• Tax advantages – Your earnings can accumulate tax free, provided they are used for qualified higher education expenses. (529 plan distributions not used for qualified expenses may be subject to federal and state income tax, and a 10 percent IRS penalty on the earnings.) Furthermore, your 529 plan contributions may be eligible for a state tax deduction or credit if you participate in your own state’s plan. But 529 plans vary, so check with your tax advisor regarding deductibility.
• Freedom to invest in any state’s plan — You can invest in a 529 plan from any state – but that doesn’t mean your child has to go to school there. You could live in one state, invest in a second state’s plan, and send your student to school in a third state, if you choose.
• Money can be used for virtually any program – Upon graduating high school, not all kids are interested in, or prepared for, a traditional four-year college. But you can use your 529 plan to help pay for qualified expenses at a variety of educational institutions, including two-year community colleges and trade schools.

Of course, a 529 plan does have considerations you will need to think about before opening an account. For example, your 529 plan assets can affect your child’s needs-based financial aid, but it might not doom it. As long as the 529 assets are under your control, they typically will be assessed at a maximum rate of 5.64 percent in determining your family’s expected contribution under the federal financial aid formula, as opposed to the usual 20 percent rate for assets held in the student’s name.

In any case, though, a 529 plan is worth considering. But don’t wait too long – as you well know, your kids seem to grow up in the blink of an eye.

The views and opinions expressed in the article are those of the author and do not necessarily reflect the views of Hill Now.

This article was written by Edward Jones. For further information, contact local financial advisor (and Capitol Hill resident) Skip Thompson at 202-223-1179 or [email protected].

If you have a medical appointment this week, you might want to wish your nurse a happy National Nurses Week. This annual event is designed to celebrate the important role nurses play in health care. Of course, while nurses and doctors can help you in many ways, you can do a lot of good for yourself by adopting healthy living habits, such as eating right, exercising frequently, and so on. But you can also do much to help your financial health.

Here are a few suggestions:

• Stay invested. During times of market volatility, it can be tempting to head to the investment “sidelines” until things “cool off.” Going to the sidelines can mean a few different things — you could simply not invest anything for a while, or you could move a substantial portion of your portfolio to “cash” instruments, which are safe in the sense of preserving your principal but offer almost nothing in the way of return or protecting against inflation. If you’re not investing during a market downturn, or if you’ve moved heavily into cash, you might well miss out on the beginning of the next market rally.
• Rebalance your portfolio. It’s a good idea to periodically rebalance your portfolio to make sure it still reflects your goals and your comfort level with risk. Over time, and without any effort on your part, your portfolio can become unbalanced. For example, following a long “bull” market, the value of your stocks could have risen to the point where they make up a greater percentage of your portfolio than you had intended. When that happens, you may need to rebalance by adding bonds and other fixed-income vehicles.
• Diversify. Rebalancing is important. But a balanced portfolio should also be a diversified portfolio. If you only owned one type of financial asset, such as U.S. growth stocks, you could take a big hit during a market downturn. But different types of financial assets don’t always move in the same direction at the same time, so by owning a wide variety of investments — U.S. stocks, international stocks, government securities, corporate bonds, real estate, certificates of deposit (CDs) and so on — you may help reduce the effects of market volatility on your portfolio. Keep in mind, though, that diversification by itself can’t guarantee profits or protect against loss.
• Maintain realistic expectations. If you expect the financial markets to always move upward, you will be disappointed many times. Market downturns are a normal part of the investment process, and they will always be with us. Once you accept this reality, you will be less likely to make questionable decisions, such as abandoning a long-term strategy. If you’ve designed an appropriate strategy, possibly with the help of a financial professional, you can stick with it through all market environments.

By following the suggestions mentioned above — staying invested, rebalancing your portfolio as needed, diversifying your holdings and maintaining realistic expectations, you can go a long way toward maintaining the fitness of your financial situation.

The views and opinions expressed in the article are those of the author and do not necessarily reflect the views of Hill Now.

This article was written by Edward Jones. For further information, contact local financial advisor (and Capitol Hill resident) Skip Thompson at 202-223-1179 or [email protected].

Tax Freedom Day, which typically occurs in late April, according to the Tax Foundation, is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year. So you may want to use this opportunity to determine if you can liberate yourself from some investment-related taxes in the future.

Actually, Tax Freedom Day is something of a fiction, in practical terms, because most people pay their taxes throughout the year via payroll deductions. Also, you may not mind paying your share of taxes, because your tax dollars are used in many ways — such as law enforcement, food safety, road maintenance, public education, and so on — that, taken together, have a big impact on the quality of life in this country. Still, you may want to look for ways to reduce those taxes associated with your investments, leaving you more money available to meet your important goals, such as a comfortable retirement.

So, what moves can you make to become more of a “tax-smart” investor? Consider the following:

• Know when to hold ’em. If you sell an investment that you’ve held for less than one year, any profit you earn is considered a short-term capital gain, and it will be taxed at the same rate as your ordinary income. (For 2016, ordinary income tax rates range from 10 percent to 39.6 percent.) But if you hold the investment for longer than one year, your profit will be taxed at the long-term capital gains rate, which, for most taxpayers, will be just 15 percent. If at all possible, then, hold your investments at least long enough to qualify for the lower capital gains rate.
• Look for the dividends. Similar to long-term capital gains, most stock dividends are taxed at 15 percent for most taxpayers. Thus, dividend-paying stocks can provide you with an additional source of income at a tax rate that’s likely going to be lower than the rate on your ordinary earned income. As an added benefit, many dividend-paying stocks also offer growth potential. With some research, you can find stocks that have paid, and even increased, their dividends over a period of many years. (Be aware, though, that companies are not obligated to pay dividends and can reduce or discontinue them at their discretion.)
• Use those tax-advantaged accounts. Virtually all retirement accounts available to you, whether you’ve set them up yourself or they’re made available by your employer, offer some type of tax advantage. With a traditional IRA, or a 401(k) or similar employer-sponsored retirement plan, your contributions are typically tax-deductible and your earnings can grow tax deferred. Contributions to a Roth IRA, or a Roth 401(k), are never deductible, but earnings can grow tax free, provided you meet certain conditions. The bottom line? Contribute as much as you can afford to the tax-advantaged plans to which you have access.

Tax Freedom Day is here and then it’s gone. But by making some tax-smart investment decisions, you might reap some benefits for years to come.

The views and opinions expressed in the article are those of the author and do not necessarily reflect the views of Hill Now.

This article was written by Edward Jones. For further information, contact local financial advisor (and Capitol Hill resident) Skip Thompson at 202-223-1179 or [email protected].

To be successful at investing, some people think they need to “get in on the ground floor” of the next “big thing.” However, instead of waiting for that one “hot” stock that may never come along, consider creating an asset allocation – a mix of investments – that’s appropriate for your needs, goals and risk tolerance.

But once you have such a mix, should you keep it intact forever, or will you need to make some changes? And if so, when?
To begin with, why is asset allocation important? Different types of investments – growth stocks, income-producing stocks, international stocks, bonds, government securities, real estate investment trusts and so on – have unique characteristics, so they rarely rise or fall at the same time. Thus, owning a mix of investments can help reduce the forces of market volatility. (Keep in mind, though, that allocation does not ensure a profit or protect against loss.) Your particular mix will depend on your investment time horizon, comfort with risk, and financial goals.

When you are young, and starting out in your career, you may want your asset allocation to be more heavily weighted toward stocks and stock-based investments. Stock investments historically have provided the greatest returns over the long term – although, as you’ve probably heard, past performance can’t guarantee future results – and you will need this growth potential to help achieve your long-term goals, such as a comfortable retirement. Stocks also carry a greater degree of investment risk, including the risk of losing principal, but when you have many years to invest, you have time to potentially overcome the inevitable short-term declines.

Once you reach the middle-to-later stages of your career, you may have achieved some of your goals that required wealth accumulation, such as sending your children to college. However, what is likely your biggest long-term goal – retirement – still awaits you, so you may not want to scale back too much on your stocks and other growth-oriented investments. Nonetheless, including an allocation to bonds can help to reduce some of the volatility of the stock portion of your portfolio.

Now, fast forward to just a few years before you retire. At this point, you may want to lower your overall risk level, because, with retirement looming, you don’t have much time to bounce back from downturns – and you don’t want to start withdrawing from your retirement accounts when your portfolio is already going down. So, now may be the time to add bonds and other fixed-income investments. Again, though, you still need some growth opportunities from your investments – after all, you could be retired for two, or even three decades.

Finally, you’re retired. At this point, you should adjust your asset allocation to include enough income-producing investments – bonds, certificates of deposit, perhaps dividend-paying stocks – to help you enjoy the retirement lifestyle you’ve envisioned. Yet, you can’t forget that the cost of living will likely rise throughout your retirement. In fact, at a modest 3 percent inflation rate, the price of goods will more than double after 25 years. So even during retirement, you need your portfolio to provide some growth potential to help you avoid losing purchasing power.

By being aware of your asset allocation, and by making timely adjustments as necessary, you can provide yourself with the opportunities for growth and income that you will need throughout your life.

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of Hill Now.

This article was written by Edward Jones. For further information, contact local financial advisor (and Capitol Hill resident) Skip Thompson at 202-223-1179 or [email protected].

Now that spring has officially sprung, you might look around your home and decide it’s time for some sprucing up. But you don’t have to confine your efforts to your house and yard — you can also engage in a little “spring cleaning” in your investment portfolio.

Here are a few suggestions for doing just that:

• “Dust off” your investment strategy. Dusting is a big part of spring cleaning. Light fixtures, shelves, windowsills — they can all acquire layers of dust and grime that need to be whisked away. And if you’ve left your investment strategy unexamined for a long period, it too may need to be “dusted off” and reevaluated. Over time, your financial goals, family situation and even risk tolerance can change, so it’s a good idea to review your overall strategy to make sure it’s still appropriate for your needs.
• Get rid of “clutter.” Once you start tidying up your house, you might be surprised at all the “duplicates” you find — a broom in a bedroom, another broom in the laundry room, a third in the garage and so on. Just as you probably don’t need multiple brooms, so you may find that you have many versions of the same type of investment in your portfolio. If you own too many of the same investment, and a market downturn affects that particular asset, your portfolio could take a big hit. You may be better off by selling some of the too-similar investments and using the proceeds to diversify your holdings. (However, while diversification can reduce the impact of volatility on your portfolio, it can’t guarantee profits or protect against loss.)
• Remove “stains” on your portfolio. As you clean your carpets and furniture, you might notice some stains that should be removed. And when you look through your portfolio, you might find some “stains” in the form of chronically underperforming investments. Instead of holding on to these vehicles with the hope that they will eventually turn around, you might consider selling them and using the proceeds to purchase new investments, which can help fill any gaps you may have in your holdings.
• Consolidate your accounts. Have you ever discovered a stapler in one drawer, a roll of tape in the linen closet and a bunch of marking pens on your desk? All these items may be useful, but for the sake of efficiency (and to cut down on frustrating searches), you might want to consolidate them in one place. And you could do something similar with your investments. Specifically, if you have some stocks here, a couple of certificates of deposits there and some IRAs at still another place, you might consider consolidating them with one financial services provider. With all your investments in one place, you could possibly reduce the fees and paperwork associated with maintaining your accounts. And when you eventually start taking withdrawals from your IRA and 401(k), you may find it easier to calculate these required distributions if they’re coming from just one place. But just as importantly, when you consolidate your investments with one provider, you may find it easier to follow a single, unified investment strategy.

So, there you have them — some spring-cleaning ideas to help you update and energize your investment portfolio. And you won’t even need a dustpan.

This article was written by Edward Jones. For further information, contact local financial advisor Skip Thompson.

We’re getting closer to April 15: Tax Filing Day. And while there may not be much you can do to change your results for the 2014 tax year, you can certainly look closely at your tax returns to find areas you might be able to improve next year — and one such area is your investment portfolio.

Of course, you may also find opportunities in other places, too. Could you have taken more deductions? Could you have moved some of your debts into a tax-deductible loan, such as a home equity loan or line of credit? You’ll want to consult with your tax advisor to determine areas of potential savings. However, you may be able to brighten your tax picture by making some “taxsmart” investment moves, such as the following:

• Resist the urge to trade frequently. It can be costly to constantly buy and sell investments. In addition to the commissions you may incur, and the possibility that such excessive trading can impede a consistent investment strategy, you could rack up a sizable tax bill. If you sell an asset that you’ve held for a year or less, any profit you earn is considered a short-term capital gain, which is taxed at the same rate as your ordinary income. So, for example, if you bought Investment ABC for $1,000 on January 5, 2014, and you sold it for $1,250 on Dec. 31, 2014, you’d be taxed on your $250 gain. If you are in the 28% tax bracket, you’d owe $70 in taxes. But if you had waited until January 6, 2015, and you sold your investment for the same $250 gain, you’d pay the more favorable long-term capital gains tax rate of 15%, which translates into $37.50 in taxes — just over half of what you’d owe at the short-term rate. If you habitually sold investments after owning them less than a year, the taxes could really add up — so try to be a “buy-and-hold” investor.
• Increase your 401(k) contributions. If you aren’t already participating in your 401(k) or similar plan, start now. And if you are contributing, boost your contributions whenever your salary goes up. You typically put “pretax” dollars in your 401(k), so the more you add, the lower your annual taxable income. Plus, your earnings can grow tax deferred.
• “Max out” on your IRA. Depending on your income level, you may be able to deduct some, or all, of your contributions to your traditional IRA — and these deductible contributions can lower your taxable income. Plus, your investment can grow tax deferred. (Keep in mind, though, that taxes will be due upon withdrawal, and any withdrawals made before you reach 59.5 are subject to a 10 percent IRS penalty.)

If you contribute to a Roth IRA, your contributions are never deductible and won’t lower your taxable income, but your earnings are distributed tax free, provided you’ve had your account at least five years and you are older than 59½. In 2015, you can contribute $5,500 to your IRA, plus an additional $1,000 catch-up contribution if you are 50 or older– and it’s almost always a good idea to “max out” your contributions each year.

By following a buy-and-hold investment strategy and using those tax-advantaged accounts available to you, you may be able to help yourself — at tax time and beyond.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.