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May 27th
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CPA advice: Invest abroad and avoid long-term bonds

moneylogo040411_optBY WARREN BOROSON

Stay invested in stocks, but expect slower growth.

Diversify overseas. And invest in companies that are boosting their revenue from developing countries. That means U.S. multinationals that are growing overseas, as well as mutual funds that invest in Chinese, Indian, Canadian, Latin American, and Australian stock markets.

Save more money for your retirement. Don’t count on liberal Social Security payments in the future.

So says Larry Elkin, CPA, CFP, president of Palisades Hudson Financial Group, headquartered in Scarsdale, N.Y.

On the last point, Elkin maintains that “Social Security is not a pre-funded retirement plan. Its trust fund is nothing more than a pile of government IOUs, and is just one claim among many against the federal purse.”

Another bold prediction of his: China will let its currency float higher, leading to higher U.S. inflation.

“To protect its interests, China needs a convertible currency that prices its goods at what they are really worth,” he argues. “I think we will see the Chinese Yuan move sharply higher within the next decade. A realistically priced Yuan will mean higher prices for Chinese goods, and hence more inflation in the U.S.

“The United States no longer controls its own financial destiny and isnt an AAA risk,” Elkin goes on. “Don’t buy long-term Treasuries or other long-term bonds.”

True, a mild downgrade of the national credit rating by Standard & Poor’s has not discouraged lenders, and Treasuries have soared since the downgrade.

But Elkin says that won’t last. “At some point in the future, lenders may simply decide they are unwilling to lend to the United States at any rate we are willing or able to pay,” he warns. “Any long-term bond, whether a Treasury, a corporate, or a muni, is a bad investment at today’s ultra-low interest rates. The best way to invest in bonds is through a high-grade bond fund that invests in corporate bonds or muni bond. Look for short-term funds with a duration of about one year.”

Still, he’s fairly optimistic about the future.

“The political center still exists, and it seems to be getting ready to finally tackle the big issues,” he says, presumably meaning the deficit and unemployment. “This is good news. It bodes well for the future of the economy and the stock market in the long term.”

Palisades Hudson is a fee-only financial planning firm and investment adviser, with $1 billion under management. There are some dozen CFPs and CPAs on staff. “We have just about everything under one roof,” Elkin says.

Clients are in 25 different states, including quite a few in New Jersey, as well as in foreign countries like Brazil.

They typically have at least $500,000 invested with the company, with the median being $5 million, with a few accounts having $100 million or more. And they receive comprehensive advice— including tax planning, something that other financial-planning firms don’t always offer. When a client has losses, for example, the firm may sell those holdings just for the tax deductions – meanwhile buying something else to keep the client’s asset allocation the same.

Palisades Hudson doesn’t invest in individual stocks, preferring mutual funds—especially exchange traded funds and index funds in general. “We’re not stock-pickers,” Elkin says. “We don’t try to figure out whether Exxon is undervalued versus Shell. That’s just not what we do.”

The firm helps clients develop an appropriate asset-allocation model, considering the client’s need for income and tolerance of volatility. Even in this “turbulent” market, Elkin says, the firm’s clients don’t panic—“if we’ve done out job well”—and instead rebalance their portfolios, to bring their stock holdings up to par.elkinLarry090811_opt

Elkin was once a journalist himself, working for The Associated Press. I complimented him on leaving the journalism business before everything went bluie. Actually, he explained, in his 20s he left journalism because he didn’t want to be doing the same thing in his 60s.

I told him that I myself have been doing the same thing well into my 70s.

The company has branch offices in Atlanta and Fort Lauderdale, Fla.

What does the company charge? “For investments that we manage, our rate is 95 basis points on the first $2 million, with a minimum annual fee of $4,750 (which is equal to 95 basis points on $500,000, which is why we seldom take accounts smaller than $500,000).

“For most of the other services we provide—income-tax planning and tax preparation, estate- tax planning, other financial planning (such as education and retirement planning)—we usually establish a fixed fee up front, rather than charging hourly rates. We find that our clients prefer the certainty of knowing what they are going to pay, and in most situations we are able to scope the work precisely enough to make this feasible.”


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