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Friday Financial Five – February 15th, 2013

Friday, February 15, 2013


Limiting the deduction on charitable contributions

Congress is considering limiting deductions for the close to 40 million taxpayers that give to charity. It’s an attempt to simplify the tax code and broaden the tax base, but it would simply result in reducing charitable giving just when low income families need it most. It makes sense to strengthen requirements for deducting non-cash contributions, but all cash given to charity should be deductible. Executives at various non-profit organizations are galvanizing and hopefully their pleas to Congress will be heard.

401(k) accounts at an all time high

A retirement plan study by Fidelity revealed that 2012 ended with an all time high in 401(k) participant assets. While it’s good news that people are still putting money away for retirement, it’s a little disconcerting that the average 401(k) account is just shy of $80,000. Looking at workers over the age of 55, the average jumps to almost $150,000, but that still won’t be enough to sustain most people through retirement. More needs to be done to educate workers about the importance of adequate savings.

Snapchat presenting a challenge to Facebook

Facebook was the highest profile IPO of 2012, but the stock failed to gain traction due to concern over the website’s ability to sustain popularity among users. Enter Snapchat, a photo-sharing application whose mission is to allow users the ability to share information while leaving no permanent imprint on the internet, a growing concern of Facebook users. Snapchat’s exponential growth at Facebook’s expense is just another example of how hard it is to stay on the top of the mountain. It has exposed a glaring weakness, one that Facebook might have to permanently address.

Investment spotlight – Alternative Investments

As one might surmise, holding money in “alternatives” entails investing in assets that aren’t considered traditional stock, bond, or real estate holdings. There’s a wide selection encompassed in “alternatives”, including precious metals, collectibles, timber, or even financial derivatives. Most investors using alternatives are looking for investments with little correlation to their traditional equity portfolio. In a tumultuous market environment, alternatives might even be presented as a safe haven, but it’s imperative to be well educated about investment and tax ramifications before committing any money to this asset class. There are mutual funds and exchange traded funds investing in this space to reduce risk through diversification, but proceed cautiously.

Online programs helping universities as well

Some universities are offering an online course-load as a lower priced alternative to cost-conscious college-goers. Alternatively, other universities across the country are plugging budget deficits by providing online courses for the same price as those that attend the classroom. The increase in online student enrollment is lowering the per-student cost for the schools and greatly increasing their revenue. But can the quality of an online education rival that of in-person learning to justify the matching costs?

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at dforbes@forbesplanning.com.


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