Can you tell the difference between someone who is trying to sell you something and someone who is trying to provide a service? Financial Advisors are there to provide a service. They should not be selling you the next best product. This is my opinion obviously and has been for a long time now. It is something I pride myself on.

Many financial products are not built to benefit the client. They are built to benefit the financial firm that built the product. If you have read my previous articles, you would know that I am not a fan of annuities. The reason is simple. Many annuities come with a cost associated with owning them that makes them a poor investment choice. If you own a variable annuity, you should do some due diligence on your own or call me and I will gladly assist you in understanding all the costs associated with owning these types of products. Financial products that pay a commission usually come with significant fees that are hidden inside the product. These fees are taken directly from your principal and will negatively affect the performance of the investment. It is often difficult for the investor to understand the costs associated with these types of investments.
In the twenty-nine plus years of helping guide people toward retirement as well as helping people to stay retired, I have seen this scenario all too often. There was a proposal to limit the fees charged in an IRA or other qualified account, but unfortunately this was struck down in appeals court. This was called the Department of Labor Fiduciary rule. It was a rule that would have benefitted investors. As an investor, you need to know the costs associated with your investments. Get the fees written down and have your broker or advisor sign it. All fees should be disclosed, and as a fiduciary I am required to put my client’s interest ahead of my own.

I have seen variable annuities and other financial products that can have internal fees upwards of 4% annually. Look, it is difficult to outperform the stock market without any fees, but if you add in the internal expense at a rate of 4% it is virtually impossible to generate a long-term rate of return that will even come close to the stock market return.

As a fiduciary, I work on a fee-only schedule. I do not sell products. I provide solutions to my client’s long-term goals and objectives. I have always said that investing is simple, but sometimes financial firms and advisors’ complicate things by trying to sell products that they do not even understand. If the advisor does not understand the product, there is no way an investor can understand it.
If you own a product like the one described in this article, please contact me for a complimentary portfolio review. I will review this product in detail and provide you with a full disclosure of the costs associated with your investment.

How often do you look at your portfolio? We have clients who look at it every day and others that only check it quarterly. Volatile markets tend to make people a little more nervous about how their investments are performing, and we believe it causes them to look at their investments more often.

As Investment Advisors, it is our job to teach our clients that they do not need to look at it every day. It will drive you crazy to see your nest egg fluctuate as much as we have seen the market move recently. A nice attribute about stocks and bonds is that you know exactly what they are worth at any given time. We all have a tendency toward wanting to know how we are doing with our investments, but it should not be daily. How often do you check the price of your home or your rental properties? We are willing to bet not that often. For many, the home is the largest investment owned, but we do not check or even know what it is worth daily. We have no way of knowing what it is worth until someone makes an offer to buy it at a certain price. Does the drop in your home value cause you to panic or lose sleep? It should not, and neither should market fluctuation for your portfolio. If it does, then you have too much risk on and you need to have a portfolio built with less volatility. Just remember, there is a trade off with risk and return with investing.

Many of our clients come in for meetings and want to know how their portfolio is performing in comparison to the S&P 500. The S&P 500 is the major market index used in comparing performance vs equity portfolios. If your portfolio is not one hundred percent equities or stocks, then comparing your portfolio returns to the S&P 500 is not a fair comparison. A portfolio that has a seventy percent stock to thirty percent fixed income weighting is not going to outperform the S&P 500 in a bull market. It will tend to outperform in down markets and will have less volatility due to the diversification of asset classes.

The fact is that as humans we tend to feel twice the pain when we see our portfolios decline in value than when we see them increase. Investing should not be considered a short-term proposition. We need to look at our investments over the long term and not make rash decisions based on daily market fluctuations. Everyone has a different situation, and we invest each of our clients based on their goals, objectives, and risk tolerance. We tailor portfolios to meet each client’s needs. There is no one size fits all when it comes to investing.

We must admit a guilty pleasure to you: We follow the NFL draft, when NFL football teams poke, prod, test, and time former college football players who seek to play in the league and earn the millions of dollars a year professional players are often paid.

It is a hopeful time for fans who wonder if a particular quarterback or wide receiver is who their team needs to win the Super Bowl (or, in my Jacksonville Jaguars case, get to .500!). But our interest goes beyond the impact the players might have on the field. The draft also has interesting lessons for investors.

The NFL strives through its rules and policies to make every game close and interesting. This, in part, has created passionate and vocal fans. This passion leads to billions of dollars in revenue for the league. Success on the field increases the teams’ revenues and profits. NFL franchises sell for hundreds of millions of dollars, so they are generally owned by successful businesspeople. The scouts are professionals who are dedicated to the assessment of football players. Since the first NFL draft was held in 1936, thousands of players have been drafted and played, the media and fans have scrutinized every pick, and, thus there is a large data set.

So drafting is very public, costly in terms of salaries paid to the drafted players, and influential to the value of the franchises. The drafters have expertise, lots of data, and a singular motivation – to win. And yet the most common metric discussed prior to the draft is the 40-yard dash time. A player’s performance in the 40-yard dash greatly impacts how highly he is drafted and, therefore, his pay. Unfortunately, there is no correlation between a player’s 40-yard dash time and his success on the field other than at the running back position. One must wonder: if highly knowledgeable and singularly motivated experts with lots of data can persist on valuing a meaningless metric, then what opportunities exist in the stock market where there are divergent motivations, imperfect data, and unexamined candidates?

Divergent motivations among market participants can be seen in spinoffs, bankruptcies, and businesses whose stock has performed poorly. Some investors simply sell spinoffs without regard to the valuation because they are not interested in the business, the market capitalization is below the minimum of their investment mandate, or the resulting position is not worth their time. To avoid taint and discomfort, some investors sell their losers or will not purchase the securities of businesses in or near bankruptcy.

The unexamined include small market capitalization businesses, newly public companies for which is there is not a readily available comparison, businesses that fall in the no man’s land between Growth and Value investors, conglomerates, and complex situations. Determining the intrinsic value of these – even finding them – requires a lot of hard work that many are not willing to undertake. The process is fun for us, not work.

Finally, we capitalize on situations where other investors overemphasize metrics or characteristics relative to the impact on intrinsic value. Some metrics/characteristics that are overvalued include trading liquidity of the security, high current growth (often without consideration of the durability of that growth), the glamour of the company and/or industry in which is competes, EBITDA, and simplicity. We happily (and profitably!) supply their qualities to the market by buying when these attributes are receding and selling when they are increasing.

Wall Street creates financial products for one reason, to make Wall Street money. As investors we need to be aware that this is a common occurrence. We need to be smart about where we invest our money. Financial products that are sold with a commission attached usually come with a catch. I see this all the time. Annuities are the biggest culprit. The sales pitch sounds too good to pass up. You cannot lose is the pitch. However, there is always something in the fine print that outlines the negatives. The positives are in big bold lettering, and they are incredibly attractive to the eye. I am here to warn you that the driver to sell these products is a big fat upfront commission to your advisor, and the advisor preys on the clients’ fear of losing money. The brochure does not disclose the compensation to the advisor. It absolutely should disclose the compensation your advisor receives for selling you this product. It should also outline all the internal fees associated with the product. The worst feature that comes with most annuities sold by advisors is the surrender charge.

The surrender charge can last any number of years. I have seen annuities that come with a 15-year surrender charge period and up to a 15 percent surrender charge to go along with it. The surrender charge period is the period the annuity product will charge you to sell the product. Think about it. The advisor gets paid upfront when the product is sold to you. Then, months or years later when you figure out it is a bad deal for you, the insurance company penalizes you with a surrender charge to sell it. If the product is so great, why penalize the client for selling it? If the product is as good as the sales pitch, then the client should want to own the product for many years. The commission the advisor receives is usually correlated to the surrender charge. If you purchase an annuity with a 7-year surrender period, it normally begins with a 7 percent surrender charge and drops over the 7-year period until it finally reaches zero.

All annuities come with a cost. Do not let anyone tell you differently. This is an inherent flaw in most of these products. The expense of owning an annuity can be mind numbing. If you are paying the insurance company 4 percent per year, you are missing out on that return on your investment. I know the promises made by the insurance company sound great, but they come with a cost that will eat up your overall return.

My advice to you is to do your homework. Research not only the product, but also the advisor selling it. Work with a Fiduciary and you will not be subject to a sales pitch with a potentially high commission product being sold to you. Fiduciaries work on fees based on assets under management. They do not get paid commission to sell products to clients. Fiduciaries build portfolios to meet client needs. There is zero incentive to sell products with lucrative commissions behind them.

IRS Form 1099 is used to report various types of income received by individuals or businesses. Its purpose is to inform the IRS about income that may be subject to taxation. If you receive a Form 1099, you are required to report the income on your tax return.

There are different variations of Form 1099, each intended for reporting different types of income. Some common types of Form 1099 include:

• 1099-R: Reports distributions from pensions, retirement account payments, and other similar sources
• 1099-DIV: Reports dividends and capital gains distributions of $10 or more.
• 1099-INT: Reports interest income of $10 or more. Sources include bank and investment accounts.
• 1099-MISC: Reports miscellaneous income of $600 or more
• 1099-B: Details the proceeds from the sale of stocks, bonds, or other securities. It provides information on the sales price, cost basis, and other relevant details.
• 1099-G: Used to report certain government payments, such as unemployment compensation, tax refunds, and state and local tax refunds.
• 1099-K: This form is used to report payment card and third-party network transactions. It is typically used by payment processors and companies like PayPal to report income received by merchants or individuals from credit card transactions or online payment platforms.
• 1099-SA: This form is used to report distributions from Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), or Medicare Advantage Medical Savings Accounts (MSAs).
• 1099-C: This form is used to report canceled debt of $600 or more. When a lender forgives or cancels a debt, the borrower may be required to report the canceled amount as income.
• 1099-S: This form is used to report proceeds from real estate transactions, including sales or exchanges of real estate.

Please note that in most years, the deadline to produce 1099s is February 15. Schwab generates 1099s for different types of accounts (e.g. IRA, Joint, etc.) at different times, so your 1099s may not be ready all at once. If Schwab does not generate an anticipated 1099 by February 15, please call us. To save trees (and money), Schwab prefers to post 1099s online instead of mailing them. You can get your 1099s by logging into Schwab.com. We provide a step-by-step guide to getting your tax forms here.

In addition, all Traditional IRA, Rollover IRA, and Roth IRA accounts will generate a Form 5498. This form, however, will not be generated until after the tax filing deadline. Please provide this form to your tax preparer. It is not typically needed but can be helpful.

Some other forms you might get include:

• 1098 = Mortgage payment
• K-1 = Partnership, trusts, or estate
• 1098E = Student loan interest
• 1098T = College tuition payment
• W-2 = for wages
• W-2G = gambling winnings
• SSA-1099 = Social Security benefits

If you are missing, have questions, or are concerned about your 1099, please contact us at 772-320-9658 or Will@victrixinvestmentadvisors.com.
Once your tax return is complete, please send us a copy so that we can provide you with the best possible tax strategies.