Preserving your wealth BACK TO BASICS
THOROUGHBRED RACING PARTERSHIPS
Managing Risk The Ford Group shares investment strategies for turbulent times
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Back to Basics Investing for the long term
Times and Seasons News from Maryland finance
Alternative Investments The Winners Circle: Thoroughbred racing partnerships
Angel Investors Hope for Marylandâ€™s tech future
Managing Risk: The Ford Group shares time tested strategies for tumultuous times Preserving Wealth Federal and state estate tax laws affect your ability to leave a legacy
Family Finances 17 A new partnership between Baltimorebased T. Rowe Price and Disney helps parents educate their children about money Media Review What to Buy and When to Sell by Charles Kirkpatrick
15 august 009
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Investor W maryland
Dear Readers, elcome to the first issue of Maryland Investor, a magazine designed to
inform and educate Maryland’s investing public. With the worst economic uncertainties since the Great Depression, many people are wondering how
to weather the storm. In this issue, we provide advice from one of the state’s most respected financial advisory groups. With over 30 years’ experience, The Ford Group has helped families and
inviduals to secure their financial futures, in good economic times and bad. We also offer an overview of Thoroughbred Racing Partnerships, an alternative in-
& CREATIVE DIRECTOR
vestment that may have special appeal to fans of the sport. We cover new appointments
at local firms and highlight angel investing groups who have formed to help Maryland
In “Preserving Wealth,” we offer advice from local estate planning attorney Robert
BRENDAN CALLAGHAN ADVERTISING DIRECTOR STEPHANIE PIETRY PUBLISHER PROVIDER MEDIA GROUP GENERAL INFORMATION
technology start-up companies succeed. Blue about how both federal and state estate tax laws can affect your legacy. We hope you will find this magazine informative, and we value your input. If you have suggestions for future topics you would like us to cover, or to nominate a local financial services firm for consideration in a future issue, please e-mail your story or request to SPietry@investorpubs.com today. Best regards, Phil Gorman, Publisher, Maryland Investor
PROVIDERMG.COM MARYLAND INVESTOR IS ONLINE MARYLAND.INVESTORPUBS.COM
Maryland Investor, Vol. 1 No. 1 is published monthly by Provider Media Group LLC, 900 Columbary Court, Eagle, ID 83616. Copyright 009, all rights reserved. Content of this publication is the copyright of Provider Media Group LLC and/or respective copyright holders. Contents may not be reproduced in whole or in part without consent of the copyright owners. Please contact Provider Media Group prior to any reproduction. For subscription information, please visit www. providermg.com. EDITORIALS AND SUBMISSIONS: Send correspondence to Editorial Department, Attn: Liza Walton, Provider Media Group LLC, 900 Columbary Court, Eagle, ID 83616. ADVERTISING: Send advertising requests to Stephanie Pietry, spietry@ investorpubs.com.
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Back to Basics
In a recessionary market, investors must not lose sight of the big picture
verywhere you look, the financial news is grim. Maryland’s State Retirement and Pension System suffered a $2.8 billion loss in fiscal year 2008. The state’s housing market was also hit hard: Maryland has the 16th highest foreclosure concentration rate nationwide. And the job numbers aren’t any prettier: June’s 7.1% unemployment rate hit a 26 year high for the state. The global numbers don’t look much better. Globally, equity markets declined 42 percent during the year, and the broad U.S. averages fell a whopping 38 percent from their October 2007 peaks. By the end of 2008, most pension plans had lost 20 to 30 percent of their asset values since the market’s peak, and their average funding ratios had declined from 85 percent to less than 65 percent on a real-time basis. A 2008 Center for Economic and Policy Research report, “Boomer Bust: Securing Retirement in a Volatile Economy,” predicted that this year, the median household in the 45 to 54 age cohort will see its net worth drop by more than 45 percent since 2004, to just over $80,000, including home equity. And a March 2009 Kaiser Family Foundation report on rising health care costs projects that by 2018, healthcare spending in the U.S. will be over $4.3 trillion—that’s $13,100 per resident per year. In fact, between 1999 and 2008, the cost of health insurance premiums grew by 119 percent, compared with wage growth of just 34 percent. In a 2009 survey by Money Magazine, nine in ten workers indicated that they have postponed their retirement; 75 percent plan to continue working at least part-time during their “retirement” years, and only 25% feel very confident about having enough money to cover basic retirement expenses, down from 40% in 2007. What do all these numbers mean for investors? It seems like the bad news is inescapable. But anyone who looks at investment cycles over the past 100 years can see that markets recover. Historically, investors who put their money in equity markets for the long term were able to beat inflation. But when the market becomes an emotional roller coaster, it can be hard to behave rationally.
by Liza Walton
The science of behavioral economics pioneered by Nobel prize winner Daniel Kahnemahn and his colleague Amos Tversky provides some answers about why investors behave the way they do, often buying high and selling low. In his 2007 book, Your Money and Your Brain, Jason Zweig explores the research behind irrational investor behavior. Among Zweig’s findings: n Making or losing money has a dramatic physical effect on your body and your brain. n When your stocks go up twice in a row, your brain automatically expects the rise to continue. n When your stock goes down unexpectedly, panic sets in. n Financial losses are processed in the same areas of the brain that respond to mortal danger. The 2009 DALBAR Quantitative Assessment of Investment Behavior showed that the average investor between 1989 and 2008 averaged a -0.97 percent return when adjusted for inflation, compared to a 5.58 percent return for the S&P 500 index. From this study we can learn more than a few things about investor behavior. With recent market corrections, many advisors feel that now is an excellent time to invest in equities. But as you plan your investment strategy, you need to take several factors into consideration including: 1) Time frame. Are you a 30 year old investing for a long distant retirement, or a 64 year old who plans to retire next year? How you allocate your funds depends on the time frame of your investment and your need for liquidity. 2) Risk tolerance. Are you risk averse, or can you afford to take some risks in chasing higher returns? One strategy to mitigate risk is diversification. But many investors mistakenly believe that by holding several different mutual funds they are effectively diversified, when in fact their mutual funds often have the same holdings. Broad based asset class diversification, across a variety of asset classes, can protect you from losses in one area by balancing with gains in another. 3) Index investing. Vanguard’s Jack Bogle has been a powerful advocate for index investing through the years. It’s a simple strategy that removes the emotion from investing. 4) Fees. No matter how you decide to invest your money, pay attention to the fees you pay. High fees can erode your returns. 5) Tax planning strategies. Should you invest in a Roth and realize tax free income in retirement? Or should you recognize tax-deferred growth in a traditional IRA? What about tax-favored investments, such as municipal bonds? In any case, a consultation with a competent financial advisor can help you to plan a “back to basics” strategy that will set your investments on the right course—so that you can enjoy your life now, and in retirement. $ august 2009
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On Time, On Budget, On the Ball 7/17/2009 3:25:03 PM
News and announcements in Maryland finance FBR Brown Advisory announce four new team members Brown Advisory, a leading independent investment firm with more than $14 Billion under management, today announced the recent addition of four members to its investment advisory team. Webb C. Hayes, IV, Theresa K. Balaran, James D. David, and Justin Lambert joined Brown Advisory from FBR Private Wealth, part of FBR Capital Markets Inc., located in Northern Virginia. The team will be located in Brown Advisory’s Bethesda office. With this addition, Brown Advisory continues its growth in the Washington, D.C. market, where the firm now has twenty-eight
Mr. David comes to Brown Advisory with extensive experience providing investment and financial counsel to a number of Northern Virginia families. He also joined FBR Private Wealth in 1999 and served most recently as a Managing Director. Mr. David is a CPA and has held various senior positions with the public accounting firms of Kenneth Leventhal, PWCoopers and Grant Thornton. With Brown Advisory, he will be a member of the Strategic Advisory Group and will continue to work with clients on complex tax and planning matters. Mr. Lambert has worked with the team at FBR for the past year and a half and is active in all aspects of client service and account administration.
employees managing over $2
billion for Washington-area
individual and institutional
com) is an independent
investment firm com-
Prior to joining Brown Ad-
mitted to delivering a
visory, Mr. Hayes was a Senior
combination of superior
Managing Director at FBR and
worked primarily with high
advice and the highest
net worth clients throughout
level of service. Since its
the Washington metropolitan
founding as an affiliate
area. Mr. Hayes will continue
of Alex. Brown & Sons in
as a Senior Client Advisor and
1993, the firm has grown
will be responsible for business
substantially, with assets
development and client service.
of approximately $14 bil-
Before joining FBR in 1999, Mr.
lion in separate accounts,
Hayes had an extensive career in banking, having served as a Director and Vice Chairman
Theresa Balaran, James David, and Justin Lambert join Brown Advisory
of United Bank of Virginia, Director and President of George Mason Bancshares, Inc. and President and CEO of George Mason Bank, N.A. until its merger with United Bancshares, and Chairman and CEO of Palmer National Bankcorp and Palmer National Bank, a private bank until its merger with George Mason. Mr.
mutual funds, and securities. Brown Advisory is
owned primarily by its partners and directors.
Legg Mason board elects Barry W. Huff as new director Legg Mason, Inc. (NYSE:LM) announced today that Barry W.
Hayes also served on the Board of the Richmond Federal Reserve
Huffhas been elected to its Board of Directors. He was also elect-
Bank for five years.
ed to the firm’s audit committee. Mr. Huff retired as a partner of
Ms. Balaran has over twenty years of experience working
Deloitte, a global audit, tax, consulting and financial advisory
with private investors, their families and philanthropies. She
firm, in May 2008. He spent more than 40 years at Deloitte and
served as Managing Director at FBR Private Wealth, where she
predecessor firms, advising clients around the globe on vari-
worked since 1999. Prior to that, she was Managing Director-
ous issues related to audits, accounting, risk management and
Client Services and a member of the investment policy commit-
corporate governance. He was a member of Deloitte & Touche’s
tee at Potomac Asset Management in Bethesda. Earlier in her
Board of Directors from 1987 to 1996. From 1995 to 2008, he was
career, Ms. Balaran was a financial consultant to the World Bank
a Vice Chairman in the Office of the CEO, with responsibility for
Pension Department. From 1984-94, she worked for Sanford C.
generating thought leadership regarding the firm’s services as
Bernstein & Co., in New York where she served clients as part of
well as for overseeing the firm’s key client relationships.
the individual and large pension advisory teams. She will serve as a Portfolio Manager and Client Advisor at Brown Advisory.
Mark R. Fetting, Chairman and CEO of Legg Mason said, “Barry Huff has significant experience in advising corporations august 2009
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Preserving your wealth
BACK TO BASICS
THOROUGHBRE D RACING PART ERSHIPS
The Ford Groupg Risk investment str shares ategies for turbulent tim es
Reach your target audience with Maryland Investor, a new publication designed for affluent, educated, financially savvy readers. For more information about adverstising rates, call
with operations around the globe and in providing independent,
“I am delighted to have someone of Mr. Unger’s talent and ex-
objective advice to managements and audit committees. This
perience in the Comptroller’s office,” said Comptroller Franchot.
expertise will be an invaluable addition to the Board and to the
“He is widely respected in the accounting world for his superior
use of technology and innovative management techniques.”
About Legg Mason: Legg Mason is a global asset management
“I am honored that Comptroller Franchot has given me this
firm, with $632 billion in assets under management as of March
opportunity to serve him and the people of Maryland,” Unger
31, 2009. The Company provides active asset management in
said. “I hope to carry on the proud traditions of the agency and
many major investment centers throughout the world. Legg Ma-
continue the fine work carried out by my predecessor John Kenney.”
son is headquartered in Baltimore, Maryland, and its common
Before Unger’s appointment, he managed the city of West-
stock is listed on the New York Stock Exchange (symbol: LM).
minster’s $40 million budget and implemented a new $400,000
Comptroller Franchot announces agency’s new accounting chief Comptroller Peter Franchot announced the appointment of Roland L. Unger, 59, of Hunt Valley, Md., as the head of the Maryland Comptroller agency’s general accounting division. Most recently the treasurer and director of finance for the city of Westminster, Unger will lead the state’s accounting activities and corporate purchasing card program in addition to producing Maryland’s annual financial report and ensuring 20,000 vendor payments. Unger is replacing John Kenney, a 34-year veteran of the department. Accounting functions were the first tasks of the Comptroller’s Office when it was created in 1851. 8
financial software package. Prior to that post, Unger was the chief financial officer for the Maryland Supplemental Retirement Plans supervising $2 billion in assets for 66,000 employee participants. He has served as a Certified Public Accountant in his own firm as well as at other companies across the state. Prior to serving in the financial world, Unger served on the Baltimore City and county police departments as a SWAT team leader and foot patrol officer. Unger is a 1972 graduate of Towson University. He earned a master’s degree in business administration in 2002 from the University Maryland College Park and is currently working on his Ph.D. in management from the same institution. He and his wife Ann have four children.
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The Winners Circle
Thoroughbred racing partnerships offer an alternative to sports enthusiasts
by Liza Walton
photos by Brendan Callaghan
The thrill of being a part of the Winners Circle at one of the eight major racetracks in Maryland and nearby states used to require a tremendous commitment of time and financial resources. But with thoroughbred racing partnerships, almost anyone can now purchase fractional shares of a racehorse, enjoying the thrills and excitement of the sport with limited risk and financial commitment. If you enjoy horse racing, you might want to consider this type
given month, more than 1,000 horse races are run in Maryland
of fractional ownership, which provides all the ownersâ€™ perks
and the surrounding states. Part of the Managing Partnerâ€™s job is
without the stresses of caring for a horse, a trainer, and staff. You
to determine which races are best suited to a particular thor-
can even own more than one racing partnership. The idea is a
oughbred while also finding the most lucrative purses available
simple one: a group of individuals pool their financial resources
at that horseâ€™s level.
to share the cost of the horse, including food, veterinary care,
But like any investment, racing partnerships require investors
training, and management. Though there are no guaranteed
to do their homework. Reputable, experienced, knowledge-
returns on horse racing partnership investments, partnerships
able trainers are critical to a positive experience. A trainer with
produce winners who share the purse based on their fractional
a strong background in the industry can help you decide what
type of investment is right for your situation. Before you decide
Partnerships provide an opportunity to experience the thrill of racing at an affordable cost with reduced risk. Partners can sit back and enjoy the sport, letting the Managing Partner focus on
to invest in a partnership, ask lots of questions, and make sure that you understand how the managing partner is compensated. In Maryland, Winners Circle Partners and Crocker Racing
the day-to-day operations. A healthy thoroughbred race horse
Stables both offer thoroughbred racing partnerships. Winners
runs every 3-4 weeks and as many as 12-16 times per year. In any
Circle is led by an experienced owner and group of trainers who august 009
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Questions to ask the managing partner How are the horses evaluated and selected? What is the win/loss record of the thoroughbred partnership? What fees and expenses will you be required to pay? What are your potential liabilities? As a fractional owner, will you have access to the owners and trainers?
manage everything from purchasing to training to racing. Before purchasing a horse, they undertake comprehensive research including bloodline analysis and conformation review to assess build and soundness. Winners Circle also provides dedicated trainers to prepare horses for races, and maintains a good relationship with jockeys and their agents. Christopher Crocker at Crocker Racing Stables is a Maryland based trainer who emphasizes performance nutrition and instilling confidence and a competitive spirit in the horses his stables race. Crocker offers a limited 30-60 day one time investment with 20% shares as low as $1,560. “We designed Class B partnerships to minimize risk and maximize gains in the shortest period of time possible,” Crocker says. “This is the most comprehensive, fast track program designed to get you to the winner circle.” At Crocker Racing Stables, partners pay a one time fee which covers the price of the horse and thirty days of training. The partner may option to get out at the end of the thirty days with no further financial obligation or continue the partnership for thirty more days of racing for just a small training fee. At the end of these blocks, the profits are divided among the partners based on their percentage of ownership. Some partners may break off to own horses individually or some may join a different type of partnership, which may allow them to own a larger piece of the action. Crocker thoroughbred horse racing partnerships offer many options. For those who love thoroughbred horse racing but don’t want to commit the time or financial resources to owning their own racehorse, a thoroughbred racing partnership can provide a taste of the thrill with limited risk, at price levels affordable to almost any investor.
For more information about thoroughbred racing partnerships in Maryland, visit: www.winnerscirclepartners.com or www.crockerracingstable.com 10
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New groups and investor incentives help to fund promising Maryland tech companies
or new technology companies, access to capital can impede chances of growth and success. According to two recent articles in the Baltimore Business Journal, some local tech entrepreneurs are taking matters into their own hands, trying to recreate the funding models that made so many Silicon Valley start-ups successful.
Baltimore Angels Network Software developer David Troy of Roundhouse Technologies led a group of former entrepreneurs and investors who formed the Baltimore Angels Network, a pool of investors who will meet the growing demands for start-up cash. “This is not your father’s investment group,” says Troy. “Our investors are current and cashed-out entrepreneurs who have ‘done it’ and can help other entrepreneurs advance to the next stage. We’re looking for entrepreneurs with a strong vision who are just beyond a friends-and-family round of raising capital.” 14 investors have already promised as much as $1 million to provide funding to the tech community. The recession has taken its toll on untried companies, who sometimes need small loans to cover payroll or other expenses before they start generating revenue. Investors are wary of giving money to companies without a proven track record. The Baltimore Angels Network will also provide a forum where entrepreneurs can hone their pitching skills and learn from other successful role models. The risk to investors is admittedly high, and the potential rewards, sometimes as much as ten times the initial investment, are great. But the group’s main motivation is to help the tech business community. Investors who want to join the group must commit at least $50,000 if they want to attend the monthly meetings where budding entrepreneurs present their business plans. Some who have already ponied up cash include Tom Loveland, CEO of Mind Over Machines Inc.; Greg Cangialosi, CEO of Blue Sky Factory; Netrino CEO Michael Barr; System Source owner Bob Roswell; and Rosenberg Martin Funk Greenberg LLP lawyer Newt Fowler. The Baltimore Angels Network is still looking for investors who are focused on mentoring Baltimore startups, Troy said. Investments will range from $25,000 to $500,000. The group’s first meeting was February 24, with more than six companies making their case to the group. The network does no formal marketing, using Twitter to share information. They hope they will be able to fill a gap in funding for companies in the Baltimore area,
especially as the current economic conditions have taken a toll on angel investing.
University of Maryland Angel Investing Group The University of Maryland, College Park, has named Craig Dye to head its angel investing group. Dye will lead the Capital Access Network, which joins together angel investors with earlystage companies for deals worth up to $1.5 million. The network is part of the university’s Dingman Center for Entrepreneurship in the Robert H. Smith School of Business. The group is one of a few angel networks in the region. As venture capital investors have moved to bigger, less risky companies, angel investors have become more important to young companies looking for cash. Dye has more than 20 years of investing experience. He was previously an adviser for the Affinity Lab, a business incubator in Washington, D.C.; founder of technology firm Wheelhouse Networks; and chief information officer for Hogan & Hartson law firm.
Biotechnology Investment Tax Credit Maryland’s commitment to funding the biotech industry within the state is evident in its Biotechnology Investment Tax Credit program, which provides income tax credits for investors in qualified Maryland biotechnology companies. This tax credit program was passed to offer incentives for investment in seed and early stage, privately held biotech companies. The bill was passed in 2005 and is funded for fiscal year 2010. The value of the credit is equal to 50% of an eligible investment made in a qualified Maryland biotechnology company during the taxable year. The maximum amount of the credit cannot exceed $250,000 for investors. The total amount of initial credit certificates issued in each fiscal year cannot exceed the amount appropriated to the reserve fund in the state budget. A Qualified Investor is an individual or any entity who invests at least $25,000 in a Qualified Maryland Biotechnology Company. A Qualified Maryland Biotechnology Company is a company that (1)has its headquarters and base of operations in the State of Maryland; (2) has fewer than 50 employees; (3) has been in active business no longer than 10 years (12 years if approved by DBED); and (4) has been certified as a biotechnology company by DBED. For more information about the tax credit and how to qualify, visit www.mdbusiness.state.md.us/businessservices/taxincentives/BiotechnologyInvestmentTaxCredit.html. $ august 2009
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Managing The Ford Group shares time-tested investment strategies for tumultuous times For investors, 2008 was one of the most tumultuous years in history. Equity markets took a beating: from its all-time high on October 9, 2007 to March 9, 2009, the S&P 500 plummeted 57%. You would be hard pressed to find a country, business or individual who was not negatively affected by the global economic downturn. Anyone who looked at the bottom line numbers on a typical 401k statement could see how great the devastation was. 79% of Americans lost money in their 401(k)s, IRAS, and individual stock and bond accounts in 2008. And the real estate market wasn’t any better: as the housing bubble burst, one in ten homeowners found themselves unable to keep up with mortgage payments. With so much negative news, many investors are wondering whether the world of stocks, bonds, mutual funds and other investments has simply become too risky. Are there any safe harbors or sound investment strategies that can help you to weather this financial storm? Maryland Investor Magazine decided to ask the experts at The Ford Group at Morgan Stanley Smith Barney to talk about how to invest in turbulent times. Harry Ford has been one of the most successful and trusted financial advisors in Maryland since 1964, when he began his career at Legg and Co. Through the years, The Ford Group has grown into one of the largest financial advisory practices in the state, building on a 30
year legacy of commitment to putting the client’s interests first. Today, the team has four partners: Harry M. Ford, Jr.; Mitchell F. Ford, CFP®; Harry “Mac” Ford III; & Eric S. Walker, CFP®. Together, these four have 86 years of combined industry experience. Their four fully registered support staff have 73 years of combined industry experience, providing clients with the peace of mind from knowing their advisors have the expertise to navigate even the trickiest financial situations. While The Ford Group has many accounts that are considered “ultra high net worth,” the average account size ranges from $500,000 to $3,000,000; average client net worth is from $1 to 5 million. The Ford Group was acknowledged by Barron’s Magazine as one of the top 100 Financial Advisors in the nation in 2006, 2007, The Ford Group Principals: Harry Ford (seated), Mac Ford, Mitch Ford, Eric Walker and 2008. They were ranked second in Maryland and first in Baltimore among Barron’s Top 1000 Advisors in 2009. Research Magazine’s Top Family Teams ranked them second in the U.S. in 2008. Their expertise has also been recognized in print in Registered Representative, USA Today, Money Magazine, The Baltimore Sun, Warfield’s, and the Baltimore Business Journal. Many things have changed since Harry Ford started “cold walking” local Baltimore businesses to find new clients by just walking in and introducing himself. But The Ford Group’s core investment philosophy has not changed. That philosophy, which has guided the team’s success, is to put the client’s interests first. Mitch Ford joined his father in 1993, literally following in Harry’s footsteps as he “cold walked” local businesses. From the start, Mitch abided by his father’s tried and true philosophy of “putting the client’s interests first,” earning the same trust that Harry established with his clients from the beginning. As their client base grew, the father/son team recognized that in order to provide the most careful and thorough service to their existing
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By Stephanie V. Pietry Photographs by Brendan Cavanaugh
clients, they would need to expand the team. Careful service to the existing clients was of extreme importance to father/son team and in 1996 Mac Ford was brought on board to do just that. The solid reputation that began 30 years ago continues today. With more than thirty years of experience and a proven track record, we wondered: how does The Ford Group put the client’s interest first when investing during turbulent times? The end of 2008 saw investors pulling their money out of the stock market, mutual funds, hedge funds and the bond markets in record numbers. Nearly every key asset class was down in 2008, with the S & P 500 losing 36.99% by year end, International Equity Funds down 43.06%, and Emerging Markets down 53.18%. 2009 has not promised a quick recovery, and investors are inundated with mixed messages from the media, warning them to hold back because the worst is yet to come, or promising that these are historic opportunities to invest.
Take emotion out of the equation Letting your emotions control your investment strategies will almost inevitably lead to poor decision making, says Mac Ford. A growing academic discipline devoted to the study of behavioral economics has clearly demonstrated that following your visceral reaction can do more harm than good, both in the short term and in the long run. Of course, after a year of losses ranging from 28% to 53%, it’s hard to find anyone who isn’t nervous about investing. Many investors are letting their emotional reaction to negative market performance trigger the most basic instinctive response of “fight or flight” take over. “This is the kind of situation when an objective, trusted investment advisor really proves his worth,” says Mac Ford. “An experienced advisor can remove the emotion from financial decision making and stick to a carefully developed strategy.” To build this client/advisor trust, The Ford Group develops client relationships that Mac describes as “personal—almost like family. We really feel the emotional reactions or concerns of our clients as if they were our own,” he says.
Remember your time horizon It’s especially critical to remove emotional decision making when you face investment choices with your retirement accounts. During volatile market periods, this can be especially difficult, which is why Mitch Ford stresses that the second critical aspect of investing is to “remember your timeframe.” In times of potential financial catastrophe, clients tend to be short-sighted. Pulling money in and out of an investment or trying to time the market will on average be an unwise decision. A good advisor can help clients to allocate their funds in ways that are appropriate to their individual risk tolerance. People who don’t plan on retiring for 10 years may react to recent
“Investors should follow the financial advice they receive and trust their advisor to act in their interests. Otherwise, they are wasting their money for advice they are not using.” —Mitch Ford, partner, The Ford Group market fluctuations by investing their money as though they’re retiring tomorrow, placing it all in cash and bonds. They will then miss the inevitable recovery and will be retiring with a lot less than they could have. Short term cash needs require very conservative investing, but the money you don’t need for several years should stay invested for growth. If the volatility is too hard for you to take, investment vehicles are now available that will guarantee an income stream but still have unlimited growth potential. “Don’t allow fear to shorten your time horizon,” says Ford. Mitch Ford also stresses the importance of developing an investment plan with your advisor, then following it, always keeping your eye on the long term goal. Investors should follow the financial advice they receive and trust their advisor to act in their interests. “Otherwise,” he says, “they are wasting their money for advice they are not using. And if you don’t trust your advisor’s advice, it’s time to get another advisor.” august 2009
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(standing from left to right) Mac Ford, Harry Ford, Mitch Ford, Eric Walker (seated from left to right) Joe Croll, Sherry Hohman, Ann Breidenbaugh, Lynn Brilhart, Dawn Biedenkapp Ultimately, The Ford Group’s years of experience have proven invaluable to their success. Harry Ford has weathered every type of market since 1964, and he’s learned a few things about things that never change along the way. That wisdom borne of experience is his legacy that he willingly shares with his sons.
Diversify, and trust your advisor Another Ford Group strategy to mitigate risks during these turbulent times is to diversify your investment holdings. Investing in different asset classes will spread the risk over a wider investment landscape. To maximize results and minimize risk, you should work with an experienced financial advisor who can find the diversification model that is appropriate to your risk tolerance and investment objectives. Not every diversification model will work for every investor. Also using a technical or quantitative model that will call to unemotionally raise cash when triggered is critical to risk mitigation. This model protects a portfolio in a “black swan” event–something completely out of the realm of probability that no one yet understands or can properly discount. Investors need to ensure that they have some safety net in place so they won’t incur the same devastating losses in the future. When looking for an advisor, Mitch stresses: “Consider first whether or not you are the kind of person who can ultimately let go of control of your assets and rely on that advisor to make the best, well-researched, emotionless decisions for you.” With that in mind, you need to develop a trusting relationship similar to the one you have with your family physician whom you trust to make decisions about your health and to recommend appropriate treatments. A good advisor will always act in your best interests. 14
Although The Ford Group specializes in managing portfolios of $500,000 and up, clients who are part of the “Ford family” can expect equal attention and care for their own extended family, regardless of portfolio value. For example, if Grandfather is the initial investor with $500,000, his granddaughters and grandsons will feel secure and well cared for with their more modest $30,000 investments. In conclusion, we asked The Ford Group why they were the right choice for our Maryland readers and asked them how they stood out from the rest. It is no surprise that 90% of their clients are Marylanders or somehow tied to Maryland through family or friends. In fact, generations of families continue to rely on their investment advice, which includes a thorough knowledge of Maryland tax laws and local municipal bonds. For investors who are looking for a trusted advisory team with a proven track record, the Ford Group is a solid solution. The Ford Group recommends that readers keep this final advice in mind when choosing an advisor: keep the appropriate time horizon in view; do not let taxes dictate investment strategies; and develop a relationship with an advisor you can trust. When asked to define The Ford Group, Mitch stresses that the team is a family acting as your primary strategic advisor. “Through over four decades of experience in many bull and bear markets, we’ve developed dynamic strategies that will help you and your family grow your assets without undue risk, protect and preserve your assets through retirement, and help you transfer your assets to your loved ones in the most tax-efficient way, in complete coordination with your accountant and attorney,” he says. “Our family would love to help your family reach your financial goals.” $
Contact Information The Ford Group at Morgan Stanley Smith Barney 650 South Exeter Street Suite 1100 Baltimore, MD 21202. T: 410-837-8800 www.fa.smithbarney.com/thefordgroup
Maryland Investor July 2009.indd14 14
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An interview with local estate planning attorney Robert G. Blue covers the basics of federal and state estate tax laws and how they affect you Robert G. Blue graduated from Gilman School (1981), the University of Virginia (B.A. 1985) and the University of Virginia School of Law (J.D. 1989). His practice focuses on estates and trusts and estate administration, with an emphasis on advising clients on tax, probate and related issues in connection with the transfer of wealth within families. Blue is a member of the Baltimore Estate Planning Council, the Estates and Trusts Section of the Maryland State Bar Association and the Professional Advisors Council of the Baltimore Community Foundation. He is a member of the Baltimore County Bar Association, the Maryland State Bar Association and the American Bar Association. Bob is admitted to practice in all Maryland courts as well as the United States District Court for the District of Maryland, the United States Court of Appeals for the Fourth Circuit, and the United States Q: What advice do you have for those who likely will not have Supreme Court. He is a partner at Royston, Mueller, to pay federal estate tax but will have to pay estate tax to the McLean & Reid, LLP in Towson, Maryland. State of Maryland?
Q: With the federal estate tax scheduled for repeal next year, do we really need to be concerned about estate taxes or other taxes
A: Any advice would have to be given on a case by case basis. For instance, one way to reduce Maryland estate tax is to give
on the transfer of wealth?
away assets to family members or charitable organizations dur-
A: It is difficult to predict anything from Congress these days,
include lifetime gifts to family members when calculating the
but there is a near consensus view among those closely follow-
estate tax. But I would not recommend this approach to a young
ing the situation that Congress will not permit repeal to occur
couple who still have mortgage and college education payments
as scheduled under the current law [the Economic Growth and
ahead of them.
ing your lifetime. Maryland, unlike the federal system, does not
Tax Relief Reconciliation Act of 2001]. Senate Bill 722 intro-
Regardless of what phase of life you are in, married couples
duced by Senator Baucus in March of this year would make
with combined assets over $1 to $2 million should consider hav-
permanent the current $3.5 million exemption as adjusted for
ing Wills which create or allow for the creation of a Maryland-
inflation. My guess is that this bill or one similar to it will be
only marital trust. At the death of the spouse who is first to die,
signed into law before repeal takes effect, maybe even by the
the assets funding such a trust are not taxed because the trust
end of summer.
qualifies for the unlimited marital deduction under Maryland
But even if the federal estate tax were to go away, we in Maryland still have to contend with the separate state estate tax, which has an exemption level of only $1 million. So if you are unmarried at the time of your death and own assets including life insurance having a value of greater than $1 million, your estate will owe some tax to Maryland’s Comptroller. The highest rate of tax that can be assessed is 16%, but Marylanders who die with assets of $5 million or less will pay at a marginal rate lower than 8%. Still, as an example, an unmarried Marylander with an estate worth $3.5 million would pay the State of Maryland $229,200 even though no federal estate tax would be due.
law. So, it is a good idea for these couples to have Wills which provide that the decedent’s assets up to the Maryland exemption amount [currently $1 million] pass to a traditional shelter trust, with the balance of the estate, up to the federal exemption amount [currently $3.5 million], passing to a Maryland-only marital trust, of which only a spouse may be a beneficiary. With proper elections made on the estate tax return, the assets funding the traditional shelter trust and the Maryland-only marital trust will escape Maryland taxation at the death of the spouse who is first to die, and will escape federal taxation at the surviving spouse’s death, no matter how much the assets appreciate in the interim. However, whatever remains in the Maryland-only mariaugust 2009
Maryland Investor July 2009.indd15 15
7/17/2009 3:26:04 PM
tal trust will be taxed in the surviving spouse’s estate, assuming
exemption amounts, I think an update is critical if the possible
that amount plus the assets in the surviving spouse’s name alone
payment of estate taxes is an issue. And especially for those with
exceed that Maryland estate tax exemption amount and the sur-
large, taxable estates, the current environment presents an excel-
viving spouse dies a Maryland resident.
lent, perhaps historic, opportunity to shift wealth to younger
Q: Why not suggest moving to another state?
generations. For instance, there has never been a better time to transfer family homes to children, either through an intrafam-
A: Then I wouldn’t have any clients [laughs]. No, seriously, for
ily loan or a qualified personal residence trust, since the rates
clients who have a second home in Virginia or Florida, where
published monthly by the Treasury Department for these types
there is no state estate tax, there is a significant potential for
of transactions are at historic lows. Similarly, with equity values
estate tax savings to be gained from a move. But a good number
so low, this is an opportune time to consider a GRAT [grantor re-
of my clients have lived in Maryland most of their lives, have
tained annuity trust]. Under such a trust, an individual can pass
children and grandchildren here and, no matter how large the
appreciation of assets over the trust’s term annually exceeding
savings, would rather live out their golden years in Maryland
the Treasury’s published rate at the time of funding [currently
than move to a state where they would be away from family and
2.4%] to family members with little or no gift tax consequence.
In a similar vein, an individual can transfer assets to a charitable
Q: It’s no secret that this economy is the worst many of us have seen, and many people feel that their estate tax problems have been taken care of by the falling markets. Is this really a time to be thinking about making changes to your estate plan? A: It depends. For those who have not adapted their plan to account for the de-coupling of the federal and Maryland estate tax
lead annuity trust whereby a charity receives annual payments for a certain number of years and family members receive the appreciation above and beyond the published “hurdle rate” at the end of the trust’s term. Q: Do you have any simple recommendations for people facing a potential estate tax bill? A: I always encourage clients with larger estates to make out-
Regardless of what phase of life you are in,
right gifts to children and others where the children or grandchildren are mature enough to handle such gifts. If they are
married couples with combined assets over
not, such gifts can be made to trusts benefitting those family
$1 to $2 million should consider having Wills
return if the total amount given to a donee in a calendar year ex-
which create or allow for the creation of a Maryland-only marital trust.
members. Federal law currently requires a donor to file a gift tax ceeds $13,000. So, certain clients like to take advantage of these “annual exclusion” gifts—the gifts don’t need to be reported and they don’t count against the lifetime gift tax exemption amount, which currently is $1 million. Q: What role does life insurance play in estate planning? A: I would take up all of your magazine’s pages explaining life insurance. I should mention briefly, however, that many married clients like the idea of placing a second-to-die policy in a trust, which if structured properly, has the effect of keeping the death benefit out of the couples’ estates for estate tax purposes. This way, assets can pass to family members free of estate tax and can be viewed as a way to replace the estate taxes paid by the couple on assets that were includible in their estates. Due to the possibility of estate tax repeal during the Bush years, many clients put this type of planning on hold, but with the prospects of repeal becoming dimmer with each passing day, I’ve witnessed an increased interest in this estate planning tool. $
This article is for informational purposes only and should not be construed as legal advice on any specific facts or circumstances. For advice specific to your needs, please consult your tax, legal, or financial advisor. 16
Maryland Investor July 2009.indd16 16
7/17/2009 3:26:05 PM
T. Rowe Price Launches The Great Piggy Bank AdventureSM at Epcot® and Online to Boost Family Financial Education
altimore’s T. Rowe Price, in collaboration with Walt Disney Imagineering and Walt Disney Parks and Resorts Online, recently launched The Great Piggy Bank AdventureSM—
two interactive financial education and entertainment experiences that offer lessons on the key financial themes of setting goals, saving and spending smartly, staying ahead of inflation, and diversifying your assets. The Great Piggy Bank AdventureSM comes to life through a hands-on, interactive experience at INNOVENTIONS at Epcot® at the Walt Disney World® Resort in Florida, and through an online virtual board game at www.thegreatpiggybankadventure.com. The Great Piggy Bank AdventureSM premieres at a time when families are engaging in conversations about the importance of saving and investing and how to manage money responsibly. By embedding educational messages into fun, entertaining experiences, The The Great Piggy Bank AdventureSM makes basic saving and investing concepts more accessible to children and adults alike. The experiences will also empower parents to start or continue the conversations while providing them with “teachable moments” they can use to impart sound financial values and habits to their kids. T. Rowe Price recently conducted a survey among parents with children ages eight to fourteen and nearly half indicated that because of the current economic conditions they are having more conversations with their kids about money. The survey also showed that parents are worried that they could be doing more to prepare their children to be financially literate, and feel that financial discussions do not happen enough. “Among the most fundamental lessons of the current financial environment are the importance of saving and getting back to basics,” said Edward C. Bernard, vice chairman of T. Rowe Price Group. “T. Rowe Price has a long history of educating investors and helping them reach their financial goals. Through this unique collaboration, we’re excited to bring core financial principles to life in an immersive and interactive way that goes beyond mere education. The Great Piggy Bank AdventureSM will give parents greater confidence to discuss these personal finance concepts with their children.” At the INNOVENTIONS at Epcot® experience, family members work together as they play a series of entertaining, hands-on games that illustrate and convey the financial lessons. After choosing a dream goal, players go through three different interactive activity stations where they direct coins into savings and away from spending buckets via a touch screen, move levers to ride the currents and
depth and can extend the learning for those who have visited the INNOVENTIONS exhibit. Designed to be played in either a single or multi-player format, the online game takes players on a journey through a mythical 3-D world while enabling them to learn the financial lessons along the way. As players advance through the game’s three levels and attempt to reach their dream goals, the financial decisions become more complex. “Finance Smarty Pants” trivia cards, “Financial Fortunes” spaces, “Choose or Lose” dilemmas, and interactive “mini-games” that follow each level emphasize the lessons and provide more opportunities to earn the Truffles that serve as the game’s currency. The game also features a virtual piggy bank which serves as a Personal Investment Guide (P.I.G.), offering game strategies and additional education on the financial concepts. “As a parent and financial planner, it’s been rewarding to see how engaged families and kids become as they go through the experiences, and to see parents begin to talk with their children about the financial concepts even while they’re still playing,” said Stuart Ritter, CFP®, a financial planner with T. Rowe Price. “The Great Piggy Bank AdventureSM lessons can last a lifetime, and having them instilled at an early age will give parents greater comfort that they will eventually be able to send their children into the world with a more solid financial foundation.” To further parents’ financial education and empowerment, T. Rowe Price has also created a Family Center microsite as a new section of the firm’s website. The T. Rowe Price Family Center features real-life stories from parents about how they are taking the financial lessons they learned at an early age and are passing them on to their children. Jeff Voris, Director of Advanced Projects at Walt Disney Parks & Resorts Online was excited and challenged by the opportunity to create an online experience of The Great Piggy Bank AdventureSM. “From the beginning we knew that these lessons were important enough that we had to extend the INNOVENTIONS experience to guests at home. Our goal was not just to create a great, fun online game for kids and their families, but also to do our best to help motivate conversations within families about the importance of setting
capture falling coins before they’ve been reduced in value by the
goals and financial planning.” $
evil wolf and his sinister inflation machine, and spread their coins
Baltimore-based T. Rowe Price (NASDAQ: TROW) is a global investment
around hiding places as they try to avoid the wolf and learn the
management organization with $268.8 billion in assets under management
value of diversification. Players are guided by a talking piggy bank
as of March 31, 2009. More information is available at www.troweprice.
who offers guidance and education to reinforce the lessons and help
com. INNOVENTIONS is located in the heart of Epcot® at the Walt Dis-
them collect enough coins to reach their goal.
ney World® Resort in Lake Buena Vista, Florida. For more information on
The Great Piggy Bank Adventure
online game is a stand-alone
INNOVENTIONS, visit www.innoventions.disney.com.
experience that explores the saving and investing themes in more august 2009
Maryland Investor July 2009.indd17 17
7/17/2009 3:26:07 PM
Media Review New trading DVD course released by Charles Kirkpatrick and Traders’ Library Traders’ Library announces the release of What to Buy and When to Sell: Technical Strategies for Selecting High Performance Stocks, a new DVD trading course from Charles Kirkpatrick, the only two-time winner of the Market Technician Association’s prestigious Charles H. Dow award and the recent recipient of the MTA’s highest honor, the Annual Award for “outstanding contributions to the field of technical analysis.” In a rare 90-minute presentation, Kirkpatrick discusses his thoughts on technical analysis versus finance theory, including why prices are not random—and Traders’ Library has made this presentation available to traders everywhere with this brand new DVD. As traders and the general public struggle through the stresses
In his organized, concise manner, Kirkpatrick presents the fundamentals that every savvy technical trader should consider. He will show you evidence that goes back over 25 years in real time, not in optimized past data, and has a recorded history of
of the toughest economy since the Great Depression, the need
pin-pointing the best stocks and the best trades. Traders will
for market education is increasingly apparent. Kirkpatrick
learn how to use these methods to optimize profits in their own
offers incredible insights for handling the volatile swings of
portfolios in both advancing and declining markets. This DVD
today’s markets. He shows traders how to use relative price
presentation is an incredible opportunity to learn from one of the
strength analysis to maximize short-term growth; these are the
best technical minds in the business.
same techniques he uses himself to outperform the S&P 500 by nearly 800%. He shares his exact formula that uses relative price strength, relative earnings growth, relative price-to-sales ratio, and chart patterns to react to triggers, rather than predict the market. He also tells you which of these is the strongest indicator. In addition, Kirkpatrick will demonstrate how to repeatedly identify the best buy and sell triggers to maximize portfolios, and much more.
Charles Kirkpatrick is president of Kirkpatrick & Company, Inc., which advises leading investing institutions on equities, bonds, currencies, commodities, and the economy. He is coauthor of Technical Analysis: The Complete Resource for Financial Market Technicians, now the required text for the MTA’s technical analyst certification program. Charles Kirkpatrick is also the author of the new book, Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell. Charles Kirkpatrick’s What
About Traders’ Library and Marketplace Books Based in Glenelg, Maryland, Marketplace Books has been serving the needs of investors, financial advisors, and professional traders since 1995, often partnering with key industry players in the investment world. Traders’ Library is the preferred online bookstore for Marketplace Books
to Buy and When to Sell: Technical Strategies for Selecting High Performance Stocks, among other trading and financial material, is available at www.TradersLibrary.com.
products. You can browse their catalog at www.TradersLibrary.com.
Maryland Investor July 2009.indd18 18
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