Voters won’t be the only ones paying attention to the presidential election – the stock market will also feel the influence as we count down to Election Day in November.

Investors have used everything from the winner of the Super Bowl to hemlines to predict the direction of the stock market. Election cycles may be just another indicator that doesn’t really have anything to do with stock prices. But then again, maybe they do. The executive branch wields a lot of influence over fiscal policy, which affects taxation and spending patterns in ways it aims to improve the economy. No politician can ignore the relationship between the health of the economy and votes. The theory is that the incumbent will try to influence the economy to expand during an election year in the hope that voters will reward him or her at the ballot box. That theory hasn’t always worked out, as the table to the right suggests.

Initially, it would appear that most presidential-election years have been good for the stock market. Unfortunately, that theory didn’t work so well during two of the last three elections. A report published by two Federal Reserve economists in 2004 concluded that neither risk nor return in the stock market is significantly different across the presidential cycle.

It’s not that the president doesn’t want to use fiscal policy to improve the economy and win reelection. In fact, one could argue that presidents should be helping the economy the whole time they are in office. Economists remind us that influencing the economy is not easy and the effects of policies often take time to work. Other factors may have a greater influence on stock prices, like the bursting of the technology bubble during the 2000 election year.

Perhaps the greatest problem an election year creates is uncertainty. Investors don’t like uncertainty, even though they have to deal with it all the time. The potential change in the Oval Office raises uncertainty over the new president’s policies and how much success he or she may have in implementing policies. Often, those policies have their potential winners and losers that keep investors on the sidelines. For example, President Obama campaigned heavily on promoting alternative energy and companies involved in those fields benefited during his first years in office.

The investment research firm Leuthold Group notes that it’s the 200 trading days after the election that you want to watch. Its research shows that stocks have increased on average by 18.3% after every midterm election since 1942. The group’s conclusion is that investors hate uncertainty and just getting past the election is a reason to rally.

The Presidential Election Cycle Theory is fun to debate, but it shouldn’t be taken seriously by investors. This theory worked reasonably well for many years – except when it didn’t. No one can predict the short-term moves of the stock market. The president may indeed want to influence the economy in a positive way that would benefit the stock market. However, as George W. Bush was reminded in 2008, the economy doesn’t always cooperate the way you want.

These concerns may be largely unfounded, as research by Vanguard would suggest. In a study published in October 2008, Vanguard found that the stock-market return since 1852 has been virtually the same for Republicans (8.66%) and for Democrats (8.97%). This would support the contention that there will be companies that benefit and those that suffer under a president’s policies – no matter which party is in office. The stock market will eventually figure it out and reward those companies that benefit. Whether the Democrat continues to hold onto the White House or the Republican challenger wins, the next four years probably won’t matter to the stock market.

Your investment strategy in 2012 should be built around your long-term financial goals, not the presidential election. Where do you want to be in five, 10 or 25 years? How much of your financial assets need to be allocated to stocks to get you there? Now, stick to your strategy. If the stock market drops, you will be under-weighted and need to buy more stocks when you rebalance. This forces you to buy low. If the stock market rallies, you will end the year over-weighted and it will be time to take some profits to rebalance

Successful investors monitor their investment strategy and periodically rebalance to take advantage of the stock market’s volatility. Too many investors try to avoid volatility by attempting to determine when to sell stocks to avoid the downturns. No one can do that consistently. The great investor Peter Lynch said, “I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.”

Then again, we could be looking at the presidential election from the wrong standpoint. The outcome of the election may not impact the stock market as much as the stock market influences the outcome of the election. No incumbent party has won an election in a year the stock market finished lower in the last 100 years. If this holds true in 2012, President Obama will be cheering for an up market … and hemlines on dresses to be higher!

This article originally appeared in the May 2012 issue of Lancaster County magazine

With the deadline to file this year’s taxes fast approaching, Fox 43 in Lancaster, PA, invited Rodgers & Associates founder Rick Rodgers onto their morning news show today to offer taxpayers some last-minute tips.

“The first one I’d start with is to make sure that you do file,” Rick tells co-host Courtney Laydon. “I know that it’s supposed to be a nice weekend, and working on your taxes is the last thing that you want to do.… The IRS does penalize you for being late.”

Rick also answers Courtney’s questions about what to do if you owe the IRS but don’t have the money on hand, what common mistakes to avoid, and how to plan for taxes in the longer term by following principles in Rick’s retirement book The New Three-Legged Stool.

Watch the full interview on Fox43.com »

When a reader sent a question to Kiplinger’s Personal Finance magazine for their Ask Kim column, Kim in turn looked to Rick Rodgers.  In the May 2012 issue of the magazine, Rodgers offers insight into rolling over a 401(k) into a Roth IRA near retirement, explaining the potential tax advantages of converting the 401(k) over the course of multiple years.

Read the full article, “Rolling Over a 401(k),” at Kiplinger.com, or on page 60 of the print edition.

The Huffington Post interviewed Rodgers & Associates founder Rick Rodgers for an article that ran last week, “Organizing Your Finances During Tax Season.” He explains that this is time to organize all your tax-related records, and then he offers five steps to use technology to make the process efficient.

The first step is to discard the records you no longer need, beginning with tax records older than seven years. Read about the next four steps »

Fox 43 Interview

Rick also recently appeared on Fox 43 morning news with words of wisdom on saving efficiently for retirement, especially for Baby Boomers who are nearing retirement in the next several years.

Watch the full interview »

These taxes are often confused as referring to the same thing – death taxes. However, they are completely different and are calculated in very different ways.

Bill and Ray decided that in order to be financially successful, they would need to become business owners. As both had experience in the hospitality industry, they pooled their money to jointly purchase a property just outside of town and open a restaurant.

Ray passed away unexpectedly when they were in their 23rd year of operating the successful restaurant. Bill and Ray had long since paid off their debt and each had named the other as the heir in their wills. Bill expected it would be a simple matter of changing the title solely to his name and later decide what to do with the business. That was before he learned about the Pennsylvania inheritance tax.

The federal government collects an estate tax, along with 17 states and the District of Columbia.

Most people are probably aware of the current debate surrounding the federal estate tax, which was repealed in 2010 and was scheduled to return in 2011 (see table). The Tax Relief Act of 2010 reinstated the tax with a $5 million exemption and a tax rate of 35% for the amount over the exemption. The law is temporary and is scheduled to expire on December 31, 2012. The fate of the federal estate tax will undoubtedly be a big discussion point in the election year.

An estate tax is calculated based on the net value of property owned by a deceased person on the date of death. All entities that currently collect an estate tax give the deceased an exemption from the tax and apply the tax to the net value of the estate above the exemption.

An inheritance tax is calculated based on who receives a deceased person’s property and, in some states, how much they receive. There are currently seven states that collect an inheritance tax (see second table). In all seven, transfers to surviving spouses are completely exempt from the tax, while in four of the seven states (Iowa, Kentucky, Maryland and New Jersey), transfers to surviving children and grandchildren are completely exempt from the tax.

The rates for Pennsylvania inheritance tax are as follows:

• 0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger.
• 4.5% on transfers to direct descendants and lineal heirs.
• 12% on transfers to siblings.
• 15% on transfers to other heirs, except charitable organizations and exempt institutions/government entities.

Inheritance tax payments are due upon the death of the decedent and become delinquent nine months after the individual’s death. If inheritance tax is paid within three months of the decedent’s death, a 5% discount is allowed.

Currently seven states collect an inheritance tax.

Pennsylvania’s inheritance tax applies to all real estate and to all tangible personal property (such as furniture, vehicles, jewelry, etc.) located in Pennsylvania, whether the property is owned by Pennsylvania residents or non-residents. It also applies to all intangible property of Pennsylvania residents (bank accounts, stocks, bonds, mutual funds and patents, etc.). Because Pennsylvania inheritance tax will apply to all intangible property of a Pennsylvania resident no matter where the property is “located,” simply opening a joint account with a bank in another state will not avoid Pennsylvania inheritance tax.

In the situation with Bill and Ray, it is the unfortunate reality that jointly titled property owned by unmarried partners who reside in Pennsylvania is almost always subject to inheritance tax upon the death of one of the partners. Bill was surprised to find out that the real estate was now worth $1.8 million. The restaurant business itself was appraised at $500,000. Their joint ownership meant that half of the value ($1,150,000) would be included in Ray’s estate. Ray also had $300,000 in a retirement account for which he had named Bill as the beneficiary.

Ray’s $1,450,000 estate was below the federal estate-tax exemption. However, because he left the estate to a non-relative, it incurred a $217,500 inheritance-tax bill. The property would need to be sold or borrowed against to pay the tax. Bill could also take money out of the retirement account to pay Pennsylvania. The withdrawal would not be subject to penalty, but it would be subject to $61,000 of income taxes. Both options have significant drawbacks.

The future of the inheritance tax in Pennsylvania is uncertain. Governor Corbett has said that he would like to see the tax repealed. There are currently several bills up for consideration by the Pennsylvania General Assembly that seek to amend or eliminate the tax altogether. Those members who are in favor of a death tax want to see it replaced with an estate tax that mirrors the federal estate tax in some way. Pennsylvania collected over $780 million from inheritance taxes in the fiscal year ending June 2011. It will be difficult to eliminate this tax without finding a way to replace the revenue.

Your estate plan should include a provision to deal with Pennsylvania’s inheritance tax. (Ray and Bill could have purchased life insurance on each other to provide cash to pay the tax.) You should consult with your estate planner on other ways to deal with this important issue.

This article originally appeared in the March 2012 issue of Lancaster County magazine

In today’s economic climate, obtaining start-up loans continues to be the most formidable obstacle to becoming a business owner. But, as the old adage goes, where there’s a will – or better yet, a business plan – there’s a way.

Zak started working at a commercial construction company immediately after he finished high school. Trained in the plumbing field, Zak didn’t mind the work, but he knew it was not what he wanted to do with his life.

After six years with the company, Zak got laid off at the end of 2007. He thought about changing careers, but was quickly offered a position with a small plumbing company. A year later, just as the 2008 recession started to grip the country, Zak was laid off again.

Six months after he got his second pink slip, the married father of three acted on a plan to start his own business, Davie Landscape and Lawncare, which is based in Mocksville, North Carolina. While the business climate is competitive, the company is growing and Zak loves going to work each day.

In today’s economic climate, success stories such as this are something to cheer about. (In our family, we’re especially elated, as Zak is our son-in-law.) With an unemployment rate that has stayed consistently above 9% over the past few years, you might think that a lot of job seekers who are frustrated over looking for work would be starting businesses. However, a recent report from the consulting firm Challenger, Gray & Christmas found that start-ups have dropped to the lowest level since the firm started tracking the statistic in 1986.

The reason may have to do with the fact that the biggest obstacle to starting a business is obtaining money to finance the start-up costs. Lending money for new businesses has always been risky, which leads to new owners usually taking out home-equity loans or using credit cards to obtain cash. Today, these sources of financing are difficult to access.

The good news is that help is available to better assist potential business owners make a case for themselves. For example, SCORE Lancaster is an all-volunteer, nonprofit association that provides free, expert business mentoring, how-to guides, and low-cost educational workshops and courses for people wanting to start their own businesses. The programs are also open to existing businesses that are looking for ways to improve.

SCORE Lancaster district director Jerry Glenn agrees that financing is the biggest obstacle for most people trying to start a business. Glenn says his group has mentored people who have great ideas and good business plans, but lack the funding they need. Lenders are reluctant to loan money based only on a business plan. Without collateral or a cosigner, most businesses end up staying on the drawing board.

Despite the difficult climate, SCORE Lancaster helped launch 35 new businesses in Lancaster County this past year. These new businesses created 75 new jobs.

The US Small Business Administration is also a great resource for information on starting a business. The website offers information on writing a business plan and finding a mentor. Information on small-business loans and grants that may be available to help get your business started is also provided.

The SBA does offer a variety of loan programs for very specific purposes. You should review the website to see if your business will qualify.

Starting a new business is risky. According to research conducted by the University of Texas, the survival rate is only 38% in the first four years. A chance of lasting 10 years falls to 9%.

Zak is confident that Davie Landscape and Lawncare will be one of the businesses that can break the four-year hurdle. Thus far, his business plan is working. While lawn-mowing keeps food on the table, Zak’s real interest is in the landscaping side of the business. So, in an effort to learn more about horticulture, he is taking courses at the local community college. He has been able to finance his business with a small personal-savings account. He buys used equipment and works out of his home in order to keep his expenses low. A portion of the gross income from each job is set aside to add or replace equipment. He rents specialized equipment when needed for a job so he doesn’t have to spend large sums on equipment that may not be used on a regular basis.

Thanks in part to client referrals, a website presence and social media (Facebook), his customer list is growing. Zak is also making plans to participate in trade shows as a way to further increase exposure for his company.

Getting Started

• Get Some Experience in the Field. Take a job working in your chosen field first and try a variety of positions before you try to run such a business on your own. You might just find that you don’t like the business anyway.
• Write a Business Plan. SCORE Lancaster says there is no other single process that can be more useful in business problem-solving than addressing the risks and thoughtfully forecasting them. If it doesn’t work on paper, it will not work in the real world, either.
• Line up Your Financing. Part of the business plan will forecast how much money you are going to need to get started. Make sure you know where that money is going to come from. Don’t rely on credit cards – it is the most expensive debt you can have. Friends and family may be your best source of funding. Discuss the risks up front. Set the loan up like a formal business transaction and establish a realistic payback schedule.
• Set up a Support System. You should bounce your ideas off a good sounding board. This person should have experience in running a business and be able to introduce you to others in a position to help. Or, establish a relationship with an organization such as SCORE Lancaster.

This article originally appeared in the November 2011 issue of Lancaster County magazine

The misconception for a lot of people is that real estate is an investment. Real estate does not grow in value on its own. In fact, you have to continuously put money into it just to maintain its value. The price appreciation you experience with real estate is really only the result of inflation.

I was recently speaking to a group of people planning to retire in the next five years. There were a lot of questions about investment strategy and gold in particular. Afterward, a man explained his strategy for investing in real estate. He reasoned that, with the exception of the past five years, real estate has always been a great investment. He pointed out that the currently depressed real-estate market made it an ideal time to load up on property. This gentleman was not asking my opinion on his strategy as much as he was trying to get me to confirm his foresight.

Unfortunately, real estate is not an investment. I’m not saying that money cannot be made in real estate, because developers do it all the time. However, it is very difficult for the average person to make money owning real estate. The argument that they aren’t making any more land or that eventually the price has to go up just doesn’t hold water.

My dad never owned a stock in his life. He believed owning real estate was the best investment ever (except for the 18-percent CDs he had in the early 1980s). He often talked about the property he bought in the early 1970s and how much it had appreciated.

If you hold this same opinion, let’s take a look at that great bargain back in the 1970s. The median price of a home in the United States in May 1971 was $25,500 according to the U.S. Census Bureau. Forty years later, the median price of a home in May 2011 is $222,600. That’s about a 10-fold increase, which works out to 5.6% annually. Certainly not a home run, but the appreciation is better than inflation over that period of time.

Here’s the part that most people forget – you had to continually put money into the property for it to maintain its value. What was the cost to replace the roof, paint, maintain the interior, upgrade electrical and plumbing, etc. over the past 40 years? Most real-estate professionals advise budgeting 1 to 3% of the cost of the home for annual maintenance.

Property taxes are another big annual expense that could easily shave another 1% per year off your return. There is also the cost of buying and selling real estate, and financing costs for those not able to pay cash. When all costs are figured in, the average property did not even keep pace with inflation over the last 40 years.

I also took issue with the statement that real-estate prices are currently depressed. This viewpoint relates to prices in 2007, when the real-estate bubble was at its peak, and comparing them to today. Census information shows the high median home price was $262,600 in March 2007. When compared to today’s market, it appears that today’s average price is down 15%. This would be a valid argument if home prices were fairly priced in March 2007. I believe they were extremely overpriced and that today’s home prices are now back to where they should be.

I believe that over time, the average home price will keep pace with its replacement cost, which is basically the rate of inflation. The median price of a home has risen 2.4% annually over the past 10 years, which is about the rate of inflation. Going back 20 years, the median price has risen 3.3% annually. Anyone waiting for prices to return to 2007 levels is going to have to wait awhile, because home prices are currently where they should be based on inflation.

I am not trying to say that you should never own property. In my opinion, owning property is a great idea if you are going to live in it, run your business from it or even use it for a vacation home. The biggest value for my dad over the past 40 years was not the price appreciation, but rather the fact that he lived there. Owning your home is part of the great American dream and the satisfaction that comes from home ownership is valuable, even if it is hard to quantify.

The current tax code has many significant tax advantages for the homeowner. Property taxes and mortgage interest are both deductible to taxpayers who itemize. The capital gain on your residence is tax-free up to $250,000 once you have lived in the house for two of the last five years.

Homeownership also has its disadvantages. Owning a house is usually more costly than renting. Replacing the heating system or roof entails expensive repairs that may come when you are least prepared to pay them.

If your job requires you to relocate to accept promotions, homeownership restricts your flexibility. You may also be required to move when conditions are less than ideal to sell a home.

Business ownership is the only true investment that grows. The easiest way for the average person to own multiple businesses is through the stock market. The value of your shares increases as the companies find new ways to make money and improve their manufacturing methods.

With the economy’s ebb and flow, the value of your shares will rise and fall as the outlook changes, but over time, businesses grow their earnings and their value appreciates. Obviously, not all businesses are successful, which is why diversification is important.

This article originally appeared in the October 2011 issue of Lancaster County magazine

Rick Rodgers appeared on C-SPAN’s Washington Journal on Sunday, September 25 to discuss the Pension Protection Act of 2006 on its fifth anniversary. Rick discusses how the act impacts employee pensions, or defined-benefit plans, what you can do to keep your pension secure, and how to avoid potential pitfalls in the current uncertain economy.

View Rick’s appearance on C-SPAN (click “Rick Rodgers, Author, ‘The New Three-Legged Stool’ & Retirement Counselor” in the right-hand sidebar)

“Last year, more than 100 pension plans failed.” So begins a new U.S. News & World Report article based on an interview with Rick Rodgers, where he walks through five situations where your pension could be at risk and what you can do to protect your retirement.

The five factors?

1. Your employer has gone through a merger or buyout
2. Your Social Security statement contains errors
3. You worked past age 65
4. You forget to alert your benefits officer about a life change
5. You frequently change jobs

For Rick’s advice on how to minimize these risk factors, read the full article, 5 Factors That Could Put Your Pension at Risk on USNews.com.

If you receive an annual summary of your company’s pension benefit plan and only take the time to glance at it, you could be putting your retirement security at risk. It’s important to review this summary, and even ask for more details, to catch errors early and to acquaint yourself with eligibility requirements, Rick Rodgers tells Investor’s Business Daily.

Read the full article at Investors.com »

With the stock markets down, there are three important steps you can take to protect your long-term wealth and to take advantages of opportunities that come from low stock prices. Rick shared these three tips with the news team from NBC affiliate WGAL-TV:

View the full video: Stock Market Plunge: 3 Things You Need To Know »