One consistent theme: Don’t get overly focused on the crisis of the moment

NORTH BAY – From around the North Bay, wealth advisers, businesses strategists and investment experts weighed in on economic opportunities and dangers in the current environment.

They are presented in alphabetical order.

Bob Bernard is a CPA and partner at Brush Bernard Mitchell CPAs in Healdsburg and the president and owner of Acacia Exchange Services Inc., specializing in 1031 real estate exchanges. He was an investor reporting manager at Wells Fargo Realty Finance and a senior accountant at Hood & Strong CPAs.

“Really, the overriding theme is getting back to basics, solid business and investment fundamentals. The booming economy of the past few years covered up a multitude of sins in the form of loose business practices,” he said.

He said for his small business clients it is focusing on things like managing accounts receivable, inventory control, staffing and their real estate investments.

“When prices were going up 10 to 20 percent a year investors could ignore ratios and essentially play monopoly to make money. Now it is back to the good old days of looking at cap rates – or, more simply, gross rent multipliers – to determine what constitutes a good long-term investment.”

[caption id="attachment_18832" align="alignleft" width="108" caption="Lorraine DuVernay"][/caption]

Lorraine DuVernay is the director of the Redwood Empire Small Business Development Center in Santa Rosa. She advises small business owners on how to stay afloat and counsels them on business plans and financing.

“There is a shift in how lenders are lending,” she said.

Anyone going in for financing needs to have a business plan that includes demographics, operations, history, product service, projections on what the business will look like with the capital injection, marketing strategies, the current economic condition, who is running the business and a background history, she said.

“It is also important to understand the lender’s loan requirements,” she added.

And a business owner should be able to tell the potential lender how much they need, what they need it for, how they are going to repay it, how long it will take, whether they have collateral and if they are willing to personally guarantee it.

Key components for successful business growth, she said, are profitable sales margins, capital and management skills.

Knowing about the administrative side of the business and marketing as well as the production of the business and the strategic plan will help a potential lender see that the plan is well thought out.

“If you are going to go in to see a lender, establish a relationship and be prepared.”

[caption id="attachment_18834" align="alignleft" width="108" caption="Michael Gradl"][/caption]

Michael Gradl is the senior vice president of investment and insurance services at Redwood Credit Union. He has more than 20 years of experience in the financial services industry and has managed the investment team at RCU since 2005.

He said it has seen increased demand for investment services over the past 18 to 24 months.

“We understand that the most worrisome concerns center on having enough saved for retirement and having sustainable retirement income,” he said.

“This is particularly relevant given the recent volatility in the stock market, which has caused some consumers’ retirement accounts and/or 401Ks to lose value.

“We are advising members to review their entire financial picture -- this includes debt management and cash flow, as well as long-term investment needs,” he said.

He advised creating a solid budget, which can uncover many opportunities for everyday saving that can really add up over time.

“We also recommend that members evaluate possibilities such as long-term care, which is an area that often doesn’t get enough consideration and can be a cost that can drain even a well-planned retirement savings.”

[caption id="attachment_18835" align="alignleft" width="108" caption="Neil Hennessy"][/caption]

Neil Hennessy is the chairman, portfolio manager and chief investment officer of Hennessy Funds. He has been in the financial services industry for more than 30 years and has ranked in Barron’s top 100 mutual funds managers for the past six years.

He believes we are in the midst of a recovery and the markets have now made a move back to “normal.”

“Since 1980, with several major corrections along the way and including the most recent downturn, the Dow Jones Industrial Average has produced a 12 percent average annual return, and I believe this type of growth rate is sustainable for the foreseeable future,” he said.

He said there are several key factors that could push the stock market higher.

“During the past year, companies have seen their stock prices crush, and many have taken this opportunity to cut costs and position their balance sheets for the future. Companies have de-leveraged themselves ... closed unprofitable business lines and taken any available write-offs. As these companies emerge leaner, we are seeing quarterly earnings steadily improving, as any additional revenue is falling to their bottom lines.”

He said the Federal Reserve appears to remain committed to very low interest rates.

“With 30-year U.S. Treasury yields at less than 4 percent, investors will need to look to the market for more aggressive returns and to stay ahead of inflation, and I believe this will drive increased investment in high-quality equities.”

He also said the price-to-sales ratio, one of the tools used to determine a stock’s value, has returned to normalized historical levels.

“Over the past 10 years, the price-to-sales ratio of the Dow Jones Industrial Average has averaged $1.23,” he said.

“At the market low on March 9, the price-to-sales ratio of the Dow had dropped to just $0.60, meaning that investors were able to buy a dollar of revenue for just sixty cents. As of the end of September 2009, this ratio rebounded to $1.21 and is again within its historical norm. As sales and earnings increase, I believe this ratio will hold steady and that stock prices will rise proportionally,” he said.

He said companies with strong balance sheets will look to increase or begin paying dividends as a way to increase the attractiveness of their stocks. As shareholders receive dividend payments and see their investments rise in value, this will spur confidence and increased consumer spending and investing, he said.

Steve Jenkins manages the trust and wealth management group at Exchange Bank based in Santa Rosa. He said there are three things it is reinforcing with its roughly 900 clients.

He said retaining focus on risk management through diversification between and within asset classes is important.

“Avoid becoming overly pessimistic in down markets and overly optimistic in up markets,” he said.

And keep costs and taxes to a minimum. Tax-efficient investing is critical to meeting one’s financial goals.

[caption id="attachment_18837" align="alignleft" width="108" caption="George McCuen"][/caption]

George McCuen is the president and founder of Napa Wealth Management and has been serving clients in the Napa Valley since 1987.

“The overriding theme is ‘I don’t want to lose more money,’” Mr. McCuen said.

Where he said several years ago people wanted a 10 percent to 20 percent return, people are happy to remain where they are today.

“We have our client portfolios in stocks with dividends,” he said. “And we place a hedge in the portfolio, which will move inversely to the stock market.”

This way, he said, it is kind of like having a foot in two arenas.

“At the end of the day, we can create an equilibrium,” he said. “And clients can live off the dividends.

He said they tend to be conservative.

“People want to get off this rollercoaster. They would rather not lose and lag a bit in performance, than take the risk of losing more in this climate.”

[caption id="attachment_18838" align="alignleft" width="108" caption="Charles Root"][/caption]

Chuck Root has been a financial adviser for 42 years. He is the president of Double Eagle Financial and is a certified financial planner.

Double Eagle also provides succession planning for business owners and family office services.

“I think we are going to get to the end of the year and see that it has been a pretty good year,” he said. “I tend to be an optimist, sure, but you have to be in the mindset of making hay when the sun shines.”

He said he is hearing a lot of uncertainty from his clients, but, “you still have to look forward and do some short-term planning even though you may have to redo it later.”

He said he looks at planning as an ongoing issue that sometimes needs to be revisited.

As far as businesses go, he said small businesses will not be getting any loans unless they have collateral.

“Businesses with $10 million and up in gross sales can probably get something from a bank. Banks are still doing deals, they do have cash, but the feds have just put a lot of extra criteria.”

[caption id="attachment_18839" align="alignleft" width="108" caption="Alice Sanford"][/caption]

Alice Sanford is the senior financial adviser with Ameriprise in Santa Rosa and has been in the business for 25 years.  She is being inducted into the Ameriprise Hall of Fame this year at the annual conference in Los Angeles. She has her clients focus on their personal economy.

“We have no control over the world economy. On the national economy we can vote, but we totally control our personal economy,” she said.

She suggests that in terms of the economy, cutting back on expenses and postponing the large nonessential items will help out.

She said doing a comprehensive financial plan will make sure there are no shocks for the investor.

“When driving, you do not just look at the road. You look at the speedometer, you check your mirrors. It is the same with finances, you have to check you expenses, income and insurance.

“Every day I wake up, and I ask myself what the new surprise will be. This is the 15th recession since the 1920s. This too shall pass.”

[caption id="attachment_18841" align="alignleft" width="108" caption="Ron Wargo"][/caption]

Ron Wargo, estate and tax planning attorney with Fridemann Goldberg in Santa Rosa advises clients with investments and tax planning.

He said the climate is one of total uncertainty. He mentioned a number of things to pay attention to this year.

The transfer-tax rules have changed for 2010. The gift-tax exemption still equals $1 million per person during their lifetime, plus an annual exclusion (currently $13,000 per year). Presently, there is no estate tax.

Congress is looking to fix the estate tax, and there is talk about the resolution being retroactive.

“There is a question about the constitutionality of a retroactive tax that hurts taxpayers,” he said.

Now, if a client dies in 2010, instead of an estate tax, clients inheriting appreciated property face the possibility of paying capital gains when they sell such property.

Before 2010, Mr. Wargo said, property received a “step-up” in its tax basis to its fair market value on the date of death, permitting heirs to sell property without paying much capital gains tax (if the value remained similar between date of death and date of sale).

Now, only $1.3 million of capital gain passing to someone other than a spouse and only $3 million of capital gain passing to a spouse receives this “step up” treatment.

In 2011, any estate greater than $1 million will be subject to estate tax.

“Even with depressed property values, many Sonoma County residents will easily exceed this amount based on the total assets in their estate,” he said.

Taxable gifts are taxed at a 35 percent rate in 2010, but this amount jumps to 55 percent in 2011. If a client is considering making a taxable gift, now is the time to do it, he said.

“One caveat is that if the client is in poor health, then with no estate tax in 2010, it may be more tax efficient to refrain from paying gift tax in the event that death occurs in 2010.”

Mr. Wargo said one issue on the horizon is that Congress may be modifying the family-owned business deduction.

He said often there is a discount given when a business is sold, and Congress is looking to eliminate that for families.

“It doesn’t seem fair, but the reason is that Congress thinks that the discount is abused,” he said.

[caption id="attachment_18842" align="alignleft" width="108" caption="John Whiting"][/caption]

John Whiting is a partner with Moss Adams Wealth Advisers in Santa Rosa. He is a certified financial planner and has been with the company for nine years.

He said in a recession the most fearful people will think that this time it is different.

“But if you go over history, even in the most up economic times there have always been bad things happening.”

He said the Roth IRA conversion is potentially a useful tool. This year for the first time anyone – regardless of income – can convert a traditional Individual Retirement Account to a Roth IRA.

Since the Roth IRA legislation was written in 1998, only people with modified adjusted gross income of less than $100,000 could make the conversion.

If an individual wants to convert a traditional IRA to a Roth IRA, he or she will have to pay federal income taxes on any pre-tax contributions as well as any growth in the investment’s value. Once converted to a Roth, however, all of the investment can be withdrawn on a tax-free basis once certain conditions are met.

On the estate planning side, he said with valuations on businesses dropping considerably, this is a great time to transfer assets.

He said a degree of uncertainty is always out there.

“But when you have been through a 7.4 earthquake, every tremor that comes along will make it difficult for people to stick to the plan.”

He counseled that people not get caught up in the chatter of the catastrophe “du jour,” and it is irrelevant in the big picture.