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Charitable Giving in the Wake of Tax Reform – Part 1

The Tax Cuts and Jobs Act (TCJA) passed in December 2017 is the largest overhaul to tax law in over 30 years.  Tax experts and the IRS are still sorting out all of its implications and how to apply the new law, but it is clear the TCJA will have a significant impact on taxation of both individuals and businesses. Due to the effective doubling of the standard deduction and the elimination of many popular itemized deductions, The TCJA has reduced tax incentives for making charitable donations for many people.  Over my next few blogs I am going to explain the basics of three strategies that we are using much more often when discussing charitable gifting with our clients here at Level Financial Advisors.  These strategies all have unique benefits over simply gifting cash. Gifting of Long Term Appreciated Property One of the first tax-saving strategies we consider when we find out a...

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Cost Basis: What is it and Why Do I Need to Know?

Cost basis is certainly not something we think about on a regular basis, but it is critical to understand what it is when a loved one passes away.  Here are answers to common questions about cost basis rules and implications. What is cost basis? Simply put, the cost basis is the purchase price of your stock, bond, or mutual fund investment. For example: If you purchased ABC mutual fund for $10,000 in a brokerage (non-retirement) account, this purchase price becomes your cost basis. Why does this matter? When you later sell your mutual fund, the cost basis helps determine your gain or loss on your investment, and subsequently, your potential tax liability. For example: if you sold ABC mutual fund 2 years later for $12,000, your gain on the fund would be $2,000 and would be taxed at capital gains rates. Other items that effect the cost basis include stock splits, reinvested dividends, and return...

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Level Financial Listed Again in National Ranking for Advisory Firms

Financial Advisor Magazine’s annual ranking of large independent investment advisors listed Level Financial Advisors 470 out of 707 firms nationally, according to the publication’s July edition. Querying thousands of firms throughout the U.S., Level posted  17.5% growth to $360 million in AUM (assets under management), marking the second year in a row the firm posted a +17% growth rate. The firm has continued its 2017 trend with strong results in the first half of 2018. The company achieved a record $380 million in AUM in July. "We continue working our strategic plan, which includes aggressive marketing, development of our CFP® professionals, and innovating our service offering and operations through technology," said the firm's Chief Operating Officer and Partner, Michael Heburn.  "We are constantly looking for new ways to bring value to our clients and it shows in the results our team has achieved over the last three years." FA Magazine  performs the annual survey as...

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Don’t Get Distracted (or Greedy)

The stock and bond markets have had a bumpy start to 2018.  But one area of the stock market in particular is having a wonderful year so far: technology stocks.  The tech-heavy Nasdaq 100 is up 13.22% year to date (as represented by QQQ).  Meanwhile, the S&P 500 is only up 3.81% and the international stock market (represented by MSCI ACWI ex US) is down -3.52% for 2018. So what exactly is lifting the Nasdaq 100?  Big tech names we all know are crushing it so far this year: Amazon up 47.95% Apple up 10.39% Microsoft up 19.22% Google up 11.02% Facebook up 14.19% Netflix up 116.42% An investor with a diversified portfolio may be hearing this for the first time or, even worse, may have already heard/read about it from their co-worker, neighbor, or in-law.  It’s common for people who are overweight in an investment that is doing great to make sure everyone around them knows it. ...

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VIDEO: Does a Declining Number of Stocks Affect the Size Premium?

Marlena Lee, PhD, Co-Head of Research – Dimensional Fund Advisors

Over the past two decades, the number of US-listed, publicly traded companies has decreased by half.1 There are many theories about what might be driving the change, such as increasing mergers and acquisitions activity, competition from global exchanges for listings, or changes in public policy and the regulatory environment for listed companies.

Historically, small cap stocks have had higher average returns than large cap stocks. This return difference between small cap stocks and large cap stocks is known as the size premium. Investors may wonder whether fewer listed companies might impact the size premium.2 Our latest research shows that, historically, neither the existence nor magnitude of the size premium have been related to the number of listed stocks.3Moreover, we believe investors should continue to expect a positive size premium over the long term.

Our Key Findings Include:

  • The number of stocks listed on US exchanges has declined from over 7,000 at its peak in 1997 to about 3,400 today. However, this has been more than offset by the growth in the number of publicly listed stocks outside the US, which is now over 39,000.4
  • Across developed markets, our research indicates that there is no relation between size premiums and the number of stocks. A smaller market should not cause investors to expect the size premium to shrink or disappear. For example, out of the 22 developed markets analyzed, Ireland, the smallest market by average number of stocks over the period examined, had the largest average monthly size premium.5
  • From 1975 through 2017, the size premium in the US was 3.48% (annualized). In an experiment that assumes only the largest 3,400 stocks existed over that same period, the size premium was virtually identical: 3.44%.6

1Includes US companies traded on the NYSE, NYSE American (formerly AMEX), and Nasdaq. Excludes non-US companies, REITs, UITs, and investment companies. Source: Dimensional, using CRSP and Compustat data. As of December 2017, there were 3,447 publicly listed securities in the US.
2The size premium is also known as the small cap premium.
3Simpson, Kaitlin and Wei Dai. 2018. “Does a Declining Number of Stocks Affect the Size Premium?” Dimensional Fund Advisors.
4Source: Dimensional, using data from Bloomberg L.P.
5Average number of stocks is the average from 1990 – 2017, the period in which data is available for Ireland. Twenty-two developed market countries were analyzed as part of our research. The size premium is the difference between returns of small and large cap stocks as calculated by Dimensional. Small cap stocks with the highest relative price (growth) and lowest profitability are excluded. Returns used to calculate the premium are hypothetical. See Important Disclosures for additional details.
6The returns used to calculate the size premiums are hypothetical, are not actual investment results, and are for illustrative purposes only. Past performance is no guarantee of future results, and actual results may vary. The size premium is the difference between returns of small and large cap stocks as calculated by Dimensional. Small cap stocks with the highest relative price (growth) and lowest profitability are excluded. See Important Disclosures for additional important details.

Important Disclosures

Ireland Size Premium: Within Ireland stocks, the smallest 0.1% of market capitalization is excluded, and the universe is restricted to exchange-traded stocks that meet minimum liquidity and listing requirements. Large cap stocks are defined as the top 87.5% of cumulative market cap ranked on firm size. Small cap stocks are defined as the bottom 12.5% of cumulative market cap ranked on firm size. Small cap stocks with the highest relative price (growth) and lowest profitability are excluded. Source: Dimensional using Bloomberg data.

US Size Premiums: Size premium, also known as the small cap premium, is calculated as the difference between the returns of small capitalization and large capitalization securities. The universe of securities is determined by Dimensional. The market universe includes publicly listed securities in the US, including stocks listed on NYSE, NYSE MKT (formerly AMEX), and Nasdaq, excluding non-US companies, REITs, UITs, and investment companies. Source: Dimensional using CRSP and Compustat data. Large cap stocks are defined as those that comprise the top 90% of the market capitalization of the universe. Small cap stocks include the bottom 10% of market capitalization of the universe. Small cap stocks with the highest relative price (growth) and lowest profitability are excluded. Stocks are weighted by their size within the small and large cap universes, unless otherwise stated. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Rebalanced in a staggered fashion, with one-twelfth of the universe rebalanced at the end of the month. Additionally, applying the methodology above, the size premium for 3,400 stocks in the hypothetical example is calculated as the premium based on the 3,400 largest stocks from the market universe over time.

Filters were applied to data retroactively. Results are backtested with the benefit of hindsight. Past performance is no guarantee of future results. The returns used to calculate the premiums are hypothetical, are not actual investment results, and are for illustrative purposes only. The results are not representative of indices, actual investments, or actual strategies managed by Dimensional. Assumes reinvestment of dividends and capital gains. Results do not reflect any costs or fees associated with actual investing, such as advisory fees and transaction costs, which would reduce returns. Actual investment returns may be lower or may differ significantly. Data is subject to numerous limitations. Start date of data is based on availability of data. Results for different time periods could differ, perhaps significantly, from the results shown. Size, or small cap premiums, can be calculated using different methodology. Results using different calculation methodology could differ, perhaps significantly, from the results shown.

All expressions of opinion are subject to change. This is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Actual future results may vary significantly from expectations.

Risks: Investments involve risks. Small and micro cap securities are subject to greater volatility than those in other asset categories. International investing involves special risks, such as currency fluctuation and political instability. There is no guarantee strategies will be successful.

Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Level Dedicates Conference Rooms to Alan Vogt and Richard Schroeder

PRESS RELEASE Amherst, NY: Level Financial Advisors, Inc. announced today that three of its conference rooms will be renamed to honor two of the firm's long-time owners. The client meeting rooms in the company’s Amherst offices will be named after Alan Vogt and Richard Schroeder later this week. “Richard and Alan have contributed so much to our firm’s history. We wanted to ensure their names will be a part of our future for years to come,” said Level’s president Rosanne Braxton, CFP®. Alan Vogt founded the firm in 1980 under the name Paramount Planning.   Rosanne Braxton was hired as an assistant soon thereafter and Vogt mentored her over the years to one-day take over as president.  The company has decided to rename another of its meeting spaces the “Paramount Room” as a further tribute to the history of the company. Mr. Vogt retired in 2010 but still visits the office on a regular basis. Richard...

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Tuning Out the Noise

For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets. Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the ”lost decade”[1] can help illustrate several periods that may have led market participants to question their approach. May 1999: Dow Jones Industrial Average Closes Above 11,000 for the First Time March 2000: Nasdaq Stock Exchange Index Reaches an All-Time High of 5,048 April 2000: In Less Than a Month, Nearly a Trillion Dollars of Stock Value Evaporates October 2002: Nasdaq Hits a Bear-Market Low of 1,114 September 2005: Home Prices Post Record Gains September 2008: Lehman Files for Bankruptcy, Merrill Is Sold While these events are now a decade or more behind us, they can still serve as an important reminder for investors today. For many, feelings of...

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Laura Roth Joins Level as Financial Planning Associate

PRESS RELEASE Amherst, NY: Level Financial Advisors has hired Laura Roth as a Financial Planning Associate with the fee-only investment management and financial planning firm. Mrs. Roth graduated from Edinboro University in 2017 achieving a Bachelor of Arts in Individualized Studies with a concentration in Financial Planning.  Since graduating, she has passed the CERTFIFIED FINANCIAL PLANNER™ examination in November and will complete her working experience requirements for certification by 2020. “We are very excited to add another bright, young professional to our growing team.  Laura will make an immediate impact in our organization and help us with the tremendous growth we are experiencing in Western New York,” stated Level’s chief operating officer Michael Heburn. Mrs. Roth will assist in client meetings, preparing financial plans and researching strategies to help clients save money, reduce taxes, and improve their financial lives.  She will also contribute to the firm’s financial planning and investment committees and work on...

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Steven Elwell Discusses Supreme Court Online Sales Tax Case

Steven Elwell, CFP® appeared on a WIVB Channel 4 News discussing a possible landmark case in the Supreme Court.  The case involves states’ right to impose sales tax on retailers that sell products online, even if they do not have property or personnel in the state requiring the tax.  The decision could mean more taxes for consumers, and more operational costs for businesses required to comply.

Who Does Your Financial Advisor Work for?

While driving around the city I live in, I often see a particular license plate frame from a local car dealership that boasts the tagline “We worked it out!”  Every time I see those words on the rear of a vehicle, I find myself wondering if that is the best way to market yourself.  The tagline implies that there is conflict when dealing with that car dealership; which is not something I would want to advertise if I was in the business of selling cars. Maybe I should give that dealership more credit, because, let’s be honest, we all expect at least some conflict during the car buying process.  This is primarily because we understand that the car salesperson has one overarching goal, to maximize their profit, not yours. Similarly, many financial consumers mistakenly think their advisor is working for them, when in reality they are very much working for themselves.  Financial...

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