Individual Pension Plans

A quick update on the Bloggers for Charity initiative. Tim Penner still has the highest bid at $250 to be a Blogger for a day on The Blunt Bean Counter site. The contest ends this week, so if you have something to say and would like to give to charity, this is your last chance. 

Individual Pension Plans

My firm deals almost exclusively with entrepreneurs and owner-managers of corporations. As such, we have reviewed numerous Individual Pension Plan (“IPP”) proposals for our clients over the last few years. In this blog post I am going to review the basic characteristics of an IPP and then discuss proposed changes to the rules pursuant the 2011 budget.

IPP’s are defined benefit pension plans established by an employer for an employee. Typically the IPP is set-up by our client’s corporations for their own benefit, their spouses benefit or for key employees.

The following are some of the key features of an IPP:

1. The contribution to your IPP (think of it as a Registered Retirement Savings Plan “RRSP” with a different acronym) is made with corporate monies and the corporation receives a deduction for the IPP contribution against its corporate income. The key here is that you are using corporate monies and not after-tax monies to fund your IPP. For example, to fund a $22,000 RRSP contribution, a high rate taxpayer would need their corporation to pay them a salary of $40,000 to have the $22,000 to contribute to their RRSP, whereas a corporate contribution would only require $25,000 or so of corporate after-tax net income.

2. For an owner-manager in the sweet spot, say early to mid-fifties, that earns over a $100,000 a year in salary and has worked for the company since 1991, in many cases they are entitled to a past service contribution in the $100,000 to $150,000 range depending upon their prior employment history. This provides a tremendous opportunity for an owner-manager who has a small RRSP due to lack of funding or poor performance to immediately rebuild their retirement fund in one fell swoop. .

3. Upon establishing an IPP, you will cease to be able to contribute to your RRSP and a portion of your RRSP must be transferred to your IPP. Future pension contributions will be made to your IPP instead of your RRSP. Typically the contribution limits to the IPP are higher than to your RRSP. In addition, an IPP may provide for a catch-up contribution if the performance is weak.

4. IPP’s have restrictions on withdrawals, unlike RRSPs, which allow withdrawals at any time.

5. IPP’s can generally invest in the same investments as a RRSP; however, you cannot invest more than 10% of the book value of the IPP in any one security.

6. At age 71 your IPP must begin payment or be converted to a Life Income Fund instead of a Registered Retirement Income Fund.

Bill Kennedy, FSA, FCIA an actuary with W.C. Kennedy & Associates Inc. in Toronto suggests some of the following advantages IPP’s have over RRSPs:

1. The IPP current service contributions are significantly larger than the RRSP contribution limits. For example, a 55 year old has a 25% IPP contribution limit vs. the 18% RRSP limit providing for approximately a $32,000 IPP contribution limit, as opposed to a $22,000 RRSP contribution limit.

2. All assets under an IPP are creditor proofed.

3. The IPP contributions are not subject to payroll taxes.

4. IPP’s allow for a “top-up” if the return for the IPP falls below a certain threshold.

5. If the IPP is set up properly and circumstances permit (child in the business), the IPP may be transferred to the next generation keeping the assets tax-sheltered, as opposed to RRSPs which are taxable upon the death of the last spouse to die.

Bill suggests the following are some of the disadvantages of an IPP in addition to the withdrawal and investment restrictions noted above:

1. Cost of set-up and maintenance. Including the required triennial valuation, the yearly costs will average between $1,500 to $2,500.

2. Compliance with the Canada Revenue Agency.

3. If the IPP assets grow to be greater than 120% of the liabilities because of bullish markets contributions may be reduced or eliminated for the year.

Under the budget tabled June 6, 2011, (originally the March 22, 2011 budget) the past service contributions were to be restricted, as essentially any past service contribution was to be satisfied by current RRSP assets first, meaning in many cases, minimal amounts could be contributed by the corporation. However, a new Ways and Means motion has muted the original rules, such that in most cases, corporate owners should still be able to make a significant past service contribution.

Personally, where a clients RRSP has limited assets and they can catch-up in one fell swoop using corporate dollars, I feel an IPP has merit. Where a client has a large RRSP in place, I am less enthusiastic to use an IPP because of the complexity of the technical rules and the high ongoing administration costs.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.

Do you Believe what you Read?

After inflicting the technical rules of a divisive butterfly transaction upon my readers on Monday, I figured I should take the required level of intellectual engagement down a notch today. Thus, my post today should be a little easier to get through.

When I was a young chartered accountant, still wet behind the ears, I wrote an article for a local newspaper on the U.S. income tax filing requirements for Canadians holding U.S. real estate. Somehow that paper made its way to Phoenix (I assume a snowbird took it with them and gave it to a friend) and I received a long distance telephone call in which the caller said “I hear you are the U.S tax expert in Canada.” At that point of my career, I was astounded that anyone would think I was an expert, but the power of the written word said otherwise.

That call was long forgotten until I had a similar experience just a few weeks ago. I wrote a blog on the NBA strike discussing the fixed-pie concept and how it related to the issues in the NBA. A few days later I received an email request from overseas asking if I would agree to be interviewed as a basketball expert by one of the largest radio sports networks in the world (as an aside, I milked this sports expert angle with my friends for days, since we always argue who knows more about sports). Anyways, to my dismay, the network later decided I was not truly a NBA expert and interviewed a U.S. sportswriter in my stead, but again the power of the written word was proven. For many people there appears to be no litmus test, if you are published in any manner be it a newspaper or blog, you are an expert.

Think about the possible consequences of such thinking, especially on the Internet. A couple weeks ago my wife and I purchased sushi grade Ahi tuna at a high end fish store. At the end of the night we still had some tuna remaining. Since the tuna is raw, we knew it had a limited shelf life, possibly not more than the same day. What was my first instinct? Of course, it was to browse the web to see if I could find an answer to my question. I was not comfortable with the qualifications of the people providing answers so I waited until the next day to call the seafood store (they said I could eat it the next day and since I did not get food poisoning, I assume they knew what they were talking about). If I had found the answer on a reputable site, like Health Canada’s website, I am not sure if I would have followed up with the store.

I know many people use the Internet to get information about medical issues and sports injuries. I see no problem with going online to get an understanding of an issue, but it is scary to think that some people assume all the information on the Internet is correct, let alone they use the Internet to make a medical diagnosis. It could literally be hazardous to their health.

Michael James recently wrote an interesting blog called The Best Kept Secret in Investing in which he states “the fact remains that the average person believes in the idea of financial geniuses whose advice they need for insights into the future of stock markets.” This insight is partially on my topic, but his next comment is directly on topic, when he says “When people find out that I write a financial blog, a typical reaction is to ask me about what will happen in the market or with interest rates.”

The presumption that Michael is a financial whiz, who knows the direction of interest rates because he writes a financial blog, is ludicrous. As it happens, Michael is a very astute financial blogger, but there are financial bloggers out there that probably work at the local grocery store, live with their mom and have $10 bucks to their name, yet have a blog called Millionaire Dollar Advice from a Grocery Magnate.

Anyways, since my readers have an extremely high level of sophistication, I know they are always dubious about everything I say :). But in all seriousness, I find it scary that people may make decisions based on what they read without knowing the qualifications of the author.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Corporate Divorces and Butterflies

Over the last couple months I have received a few private emails enquiring about the services provided by my firm Cunningham LLP. I have never directly marketed my firm on this blog; however, today will be the exception.

Cunningham LLP is a mid-market CA firm that deals almost exclusively with owner/managed corporations. We prepare financial statements (Notice to Readers, Reviews and Audits) and provide advisory services on acquisitions, divestitures, financing and succession planning to name a few. In addition, we provide business valuations, bookkeeping, wealth management services and, the service area most dear to my heart, income tax services. The income tax services range from corporate reorganizations and remuneration strategies, to estate planning, estate freezes and the introduction of family trusts amongst a plethora of other services. Today, I have decided to show off some of our income tax expertise; at least that is what I told my tax partner Aaron Schechter (I really needed a break from writing) when I convinced him to write today's guest post.

Corporate Divorces and Butterflies

In the ordinary sense of the word, a butterfly (noun) is defined as a nectar-feeding insect, characterized by two pairs of large, typically colorful wings and clubbed or dilated antennae. However, the term “butterfly” when used in an income tax context is often the most tax efficient solution for shareholders who often can no longer stand each other and want to part ways, while each taking their pro rata share of the business with them. In other words, a “butterfly” transaction is used to divvy up the business on a tax-free basis.

The transaction is referred to as a “butterfly” by tax practitioners because when diagrammed, the series of steps resemble the wing(s) of a butterfly.

A butterfly transaction is one of the more complicated transactions to carry out for Canadian income tax purposes. Butterfly transactions are typically used where there are arm’s length parties. It should be noted that when the shareholders are related (siblings are deemed not to be related for purposes of the butterfly rules) there are usually simpler ways to achieve the intended divorce than a butterfly.

The complexities lie in the provisions and rules found in the Income Tax Act that make the transaction tax-free. These provisions contain several income tax minefields and should the parties misstep they can quickly find themselves outside the tax-free provisions. Since the dollar amounts involved in a butterfly transaction are generally fairly large (if the dollar amounts were small, the parties would more than likely opt to create a taxable divisive transaction rather than dealing with the administration e.g. obtaining a tax ruling and incurring the professional fees associated with a tax-free butterfly transaction), a misstep can result in significant taxes owing.

While the specifics of the tax-free butterfly provisions are beyond the scope of this blog, in general a tax-free divisive reorganization of private corporations can be accomplished if:

1. Each type of corporate property is distributed pro rata to all shareholders. Corporate property is divided into three types – cash and near cash, investment property and business property;

2. A shareholder’s proportionate share of each type of corporate property is determined immediately before the transfer and is equal to the proportion of the fair market value of the shares of the distributing corporation owned by the shareholder relative to the total fair market value of all the issued shares of the distributing corporation.

3. The recipient(s) of the corporate property is(are) a corporate shareholder(s).

4. The recipient(s)’s shares of the distributing corporation is cancelled or redeemed at the end of the transaction.

The tax-free butterfly transaction is best illustrated with an example. Say Mr. Sheen and Mr. Lorre each own 50% of a company that specializes in organizing children’s birthday parties called Children Birthday Surprises Ltd. or CBS for short. Mr. Lorre believes that Mr. Sheen has not been devoting himself to the business and his recent behaviour has been negative for CBS. On the other hand, Mr. Sheen believes that he has not been properly remunerated by CBS for his contributions to the business. In other words, Mr. Sheen and Mr. Lorre want to part ways and each take a part of the business with them. They wish to undertake a tax-free butterfly transaction.

Prior to separating, the company owns $1,000,000 of cash, $2,500,000 of marketable securities (cost $1,000,000) and $5,000,000 of inventory (cost $4,000,000) and the ownership structure looks like this:

The first step of the butterfly is to have Mr. Sheen incorporate a new company, SheenCo. He then transfers his 50% ownership of CBS to SheenCo. The transfer takes place on a tax-free basis under the rollover provisions in the Income Tax Act.

Next, CBS transfers 50% of the cash, 50% of the marketable securities (investment property) and 50% of the inventory (business property) to SheenCo. in exchange for shares of SheenCo. Again, the transfer takes place on a tax free basis under the rollover provisions in the Income Tax Act.

Immediately thereafter, SheenCo, has its 50% share ownership in CBS redeemed for $4,250,000 and CBS has its shares of SheenCo. redeemed for $4,250,000. The redemption proceeds for each redemption are satisfied by promissory notes worth $4,250,000.

The promissory notes are then offset by each other and cancelled. Each of SheenCo. and CBS now own 50% of the original assets and can carry on business separately.

The transaction discussed above is commonly referred to a “single wing” butterfly since only one additional corporation is incorporated. However, “multi-winged” butterfly transactions are also possible.

Butterfly divisive reorganizations are generally much more complicated and involved than the example provided, so it is often recommended that the parties obtain an advanced tax ruling from the Canada Revenue Agency to confirm that the transactions proposed will indeed be tax-free. When undertaken properly, the tax-free butterfly transaction can be as beautiful as the real thing, just remember to tread carefully, otherwise the process could metamorphosize into something a whole lot uglier.

Finally, I hope it goes without saying, but today's discussion has been general in nature and the specific nuances related to a divisive reorganization are vitally important. Thus, do not act without first seeking professional advice.

Aaron Schechter CA, is a partner with Cunningham LLP, who specializes in income tax planning and income tax reorganizations.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.

The IRS may have a true Amnesty for Americans living in Canada

As discussed several times in my blog, citizens of the United States must file yearly income tax returns and numerous forms even though they live in Canada. A recent quiet amnesty program (quiet since no one really heard about it until the newspapers started reporting it) stirred up a hornet’s nest, into which Finance Minister Jim Flaherty jumped saying that “U.S. authorities are spreading unnecessary stress and fear among law-abiding Canadians in their aggressive pursuit of offshore tax cheats.” 

Many U.S. citizens living in Canada filed U.S. income tax returns for prior years under the recent amnesty program, paying thousands of dollars in penalties, while often paying as much to income tax preparers.

However, there may be good news on the horizon. Barrie McKenna reports in today’s Globe and Mail that it appears that the IRS may have a final well publicized amnesty program where they may waive penalties for U.S. citizens who come clean and don't owe any U.S. taxes. Mr. McKenna reports the new rules will be announced within weeks.

Finally, Mr. McKenna reports that Americans who took part in the earlier amnesty program this year or one in 2009, may be able to reapply and get back penalties they paid.

The devil will be in the details, but stay tuned; U.S. citizens living in Canada may now have one last shot to come clean without any punitive financial cost.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Anti-Boring Portfolio- Me and My Money Revisited

I am in the process of transitioning from being an active stock picker to a more conservative passive investor. Numerous bloggers and journalists preach passive index investing with re-balancing and little trading. My blog on Monday highlighted the book, The Brilliance of Boring Investing by Marshall McAlister. In that book, Marshall discusses how passive boring investing, through indexes, is the way most investors should design their portfolios.

As I have discussed in prior blogs, stock investing should not be considered entertainment. However, I will admit that personally, I still need a small fix of speculative stocks in my portfolio. When I complete my metamorphosis to a full-fledged boring investor, I will get my stock picking fix by allowing myself to pick individual stocks for the small cap. allocation of my portfolio, which will be 60% of my portfolio (just joking, somewhere between 5-8%).

Last February Larry MacDonald profiled me in The Globe & Mail’s Me and My Money column. In the column I noted many small cap. stocks I held. These stocks only comprised a portion of  my portfolio, but I noted them because, let's face it, it is boring reading about the same 5 ETF's everyone holds. So as my stock picking days fade into the sunset, I let my anti-boring alter ego take over for one last time and discuss how my small cap picks have fared since the February, 2011 Me and My Money column.

I am posting this blog for three reasons: (1) Just for fun, as I can only read so much about index investing (2) to note where these picks came from, and (3) to reflect how risky and volatile small cap stocks are, which is a stark contrast to Marshall's boring investing mantra.

I have stated numerous times in my blogs, that as a chartered accountant I cannot provide specific investment advice and I do not have any regulatory investment licenses or specific training. I actually even felt compelled to check with my regulatory body that I could even be featured in the Me and My Money column, in case my picks were considered as investment advice.

Thus, to be clear, this blog is not to be construed as providing any specific investment advice and in fact I waited to write this blog until I disposed of most of these stocks and I will not disclose which of the two stocks I still own.

All joking aside about boring investing, stock picking is a risky way to play the market and research has shown it to be ineffective for the vast majority of people, and thus, I would not recommend picking individual stocks for the vast majority of people.

The following chart reflects my stock picks (except for Microsoft) in the Me and my Money column on February 11, 2011 and the closing price on November 29, 2011.

Name	Feb 12	Now
Costal Energy Company	7.36	$13.80
Wi-Lan Inc.	6.25	$5.52
Sterling Resources Ltd.	4.70	$1.70
Rainy River Resources	13.12	$7.35
Hathor Exploration Ltd.	3.30	$4.69
Nymox Pharmaceutical Corp.	6.49	$7.53

The Costal Energy pick came from the Investor Village chat forum. Most would think that to be a strange and risky place to obtain a stock pick and I could not agree more. However, I have followed a certain poster on the forums for years and he has selected several winning stocks and he made several compelling posts on why Costal was extremely undervalued. Those posts got me interested in the stock and I researched it further. Costal Energy which operates in Thailand, has been very successful in both finding oil and increasing production since February and the stock price reflects such.

I invested in Wi-Lan after reading about how it was protecting its patent portfolio by initiating litigation for royalty payments against the who’s who of technology companies. Based on my research, I figured it would become a cash cow upon settlement of the litigation. Most companies eventually did settle and the stock price soared to $9.50 or so buoyed by an indirect valuation put on Wi-Lan's patent portfolio by the sale of Nortel’s patents and a New York Stock exchange listing. However, Wi-Lan had some issues with one of its lawsuits and also made a failed hostile bid for Mosaid which deflated its stock price.

Sterling was a pick from a free newsletter I receive called David Pescod’s Late Edition. The newsletter contains many high risk stocks and thus I am not recommending or condoning the newsletter, I am just making you aware of its existence. David Pescod is an investment advisor for Canacord who writes about resource and small cap stocks. Sterling was undertaking some high impact drilling in the North Sea and if successful it was thought the company would explode in price. With some initial success the stock rose to $5, however, subsequent drilling was not as successful as hoped for and they had an issue obtaining drilling permits in Hungary, so unfortunately, the stock price exploded to the downside.

I learned of Hathor through a friend who was keen on Uranium and he provided me his due diligence. By happenstance, Pescod’s Late Edition was also bullish on Hathor since around the $1.90 mark. Hathor is the poster child for small cap stocks. It ran to $4.50 on great drilling results and was rumored to be a takeover candidate. However, as a uranium explorer, the stock price collapsed back to $1.80 after the nuclear meltdown in Japan. Subsequently, Cameco initiated a hostile takeover at $3.75 which has resulted in a bidding war with Rio Tinto, which Rio appears to have won at an offer of $4.70. Hathor shareholders have had quite a wild ride this year, unfortunately for many, they exited the stock after the nuclear disaster.

Rainy River is a gold explorer but, like many gold stocks, it has not participated fully with the exploding price of gold which is a strange phenomenon on its own. I first heard of Rainy on a stock chat board.

Nymox came from a friend who is in the medical field. It is in phase 3 testing for a pancreatic drug.

Although the above portfolio is only a microcosm of a small cap. ETF or mutual fund, it actually almost performed on key. It had one huge winner (Costal), one big winner (Hathor), two neutrals (Wi-Lan and Nymox) and two flameouts (Rainy River and Sterling). That is why most advisors want some exposure to small caps, potential gains in excess of the market (this mini-portfolio if equally weighted outperformed the TSX by 15% or so), however, advisors try and cover the downside risk by having a large baskets of small caps.

So this is how my stock picks from February have fared.  As I stated earlier, this post should not be construed as advice in any way and I have sold most of these stocks. This post was written in most part for entertainment purposes. Now you can go back to boring investing.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Brilliance of Boring Investing & Bloggers for Charity update

I would like to update the Bloggers for Charity initiative and provide some clarifications before I get to my post on the Brilliance of Boring Investing. Firstly, Tim Penner has bid $250 to be a Blogger for a day on The Blunt Bean Counter site, outbidding Bradley Ashley’s generous $200 bid. Anyone want to top Tim?

There seems to be some confusion on the contest and rules, so I clarify:

1. The winning bidder may make their donation to the charity of their choice; it does not have to go to the United Way. My initial post on the initiative stated that the idea for this contest came from a client raising money for the United Way, but there is no charity of choice for the initiative. 

2. Each blogger participating in the initiative is auctioning off one guest post on their blog. The guest post will not appear on all the participating bloggers’ sites. For example, if Tim wins the auction for my site, his guest post will only appear on The Blunt Bean Counter site, it will not appear elsewhere.

3. Bids are made in confidence to each participating blogger’s email, however, the bloggers are encouraged to share the top bid(s) received to date on their site to encourage further bidding. Bloggers must ask permission from the bidder before disclosing the bidder’s full name or they should only use initials or say anonymous.

Although I was hoping for a little more traction this week, many of the who’s who of financial bloggers are participating. It would be great if bloggers of all ilks join the initiative. The following blogs are participating as of today:

Boomer & Echo                     Canadian Capitalist

Michael James On Money      Canadian Finance Blog

Retire Happy Blog                 Financial Highway

Canadian Financial DIY         Where Does All My Money Go

Young and Thrifty               Canadian Personal Finance Blog

The Blunt Bean Counter

The Brilliance of Boring Investing

After reading Jonathan Chevreau’s column titled “Investing is boring: if you want excitement, go to Vegas", in which he quoted Marshall McAlister, the author of the book The Brilliance of Boring Investing, I wrote a blog on the same topic discussing some of my personal experiences.

Based on Jonathan’s column and Jim Yih’s recommendation, I purchased Marshall’s book. For a book on building investment portfolios, it is a relatively easy read, and although it does not have any earth shattering revelations, I think that is the point – keep it simple and boring; it is a book you should consider purchasing.

The Brilliance of Boring Investing was initially intended to be a book for Marshall's clients and thus, the book is very client friendly and understandable. Below is a summary of the final chapter of Marshall's book where he lists seven points, which he calls his 1% solution, to allow investors to take control of their own portfolios.

1. Build a team of qualified professional advisors - investment advisor, tax accountant and estate and will lawyer.

On this point I agree whole heartedly with Marshall. However, as discussed in my Who is your wealth management quarterback? blog, it is not enough to just have a team. You need to appoint one of your advisors as the quarterback responsible for ensuring your advisors are working together to provide a comprehensive and integrated plan and not several disjointed plans. As I suggest in my blog, if you do not have a sophisticated well rounded advisor such as Marshall, your accountant is often a good selection for your quarterback.

2. Discover your sleeping point and ensure your portfolio is composed of enough conservative assets to keep the portfolio at the appropriate level of risk.

This is extremely important advice; however, I am not sure one truly knows if they can sleep at night until they go through a market meltdown. Your sleeping point can theoretically be determined beforehand, but in my opinion, can only be confirmed through actual experience and it may need to be revamped as you recognize what your true level of risk tolerance is after you have experienced a bad market.

3. Recognize the advantage of index based investment tools over that of typical active management in terms of performance, cost and taxes.

Not much needs to be said in reference to this point. Multiple studies have proven only a small portion of active investors actually outperform market indices. If you are a Do-It-Yourself investor ("DYI") and want to take control of your portfolio as Marshall discusses, the ETF options are enormous. Two great resources to help any DYI are  The Canadian Capitalist and The Canadian Couch Potato. Both bloggers have an incredible library of informative blogs on ETF's that not only provide options for your portfolio, but compare many of the alternative ETF’s.

4. Globally diversify your equity portfolio to spread your exposure to as many geographic markets as have merit for inclusion.

Again, pretty much a common investment mantra as global diversification is a key component of any portfolio allocation.

5. Understand the risk and return trade of Value Investing and incorporate the appropriate level of Value Stocks to match your return objectives.

Marshall notes that a great company may have an extremely high stock price that precludes it from being a good investment, yet a so-so company that is moving towards greatness may have better value. As Marshall is from Edmonton, I had never met him or spoke to him. However, this week we talked on the telephone about this blog and I was confused on this point. If you want a so-so company moving towards greatness, is he not suggesting being a stock picker as opposed to a index investor? Marshall said this was a good question (probably just being polite) and said this can be accomplished through pooled and private funds that specialize in this area.

6. Understand the risk and return trade off of Small Company investing and build in the needed exposure to small companies to further diversify and increase potential return.

Historically small cap stocks have delivered a higher return than large companies; however, the risk associated with owning small cap stocks is very high. That is why a small cap. ETF that has a large basket of small cap stocks works; it ensures spectacular flame outs do not decimate your small cap fund.

7. Recognize that as humans we are not always wired to be great investors. Commit to keeping your emotions in check by holding course to the detailed wealth management plan that has been designed for you.

Definitely under the easier said than done category. I would suggest the key to this point is finding your sleeping point under #2.

That’s it for today; on Wednesday I contrast Marshall's proper portfolio construction with the anti-boring portfolio I discussed when I was profiled by Larry MacDonald in Me and My Money.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Steve Jobs or Bill Gates- Who should be on the pedestal?

On Monday I started the Bloggers for Charity initiative. In keeping with the charity theme, today I will discuss how a person’s charitable intentions may affect how they are viewed by society when their life is looked at in totality. There is no better comparison to illustrate the significance of philanthropy when looking at the impact an individual has on the world than comparing Bill Gates and Steven Jobs.

Before I get to my post, a quick public service announcement. Bradley Ashley (permission granted to use his name) has bid $200 to be a guest Blogger for a day on The Blunt Bean Counter. If you want to top Bradley's bid, please email me at bluntbeancounter@gmail.com.

A few days after Steve Jobs passed away, the adulation faded in some quarters and some critics began to note his poor track record in regard to charitable causes, especially when compared to his contemporary, Bill Gates.

When talking around the water cooler with colleagues at work, this topic arose often in the week or two following Mr. Jobs death. People were reading that not only did Jobs personally not donate to charity, but that he had eliminated all corporate philanthropy programs at Apple. However, since Jobs was quoted as saying he did all his charitable acts privately, one will never know without reviewing his personal income tax return how philanthropic he was or was not. In this Washington Post article , Bono of U2 supports Jobs’ when he is criticized for his poor philanthropic efforts.

On a personal basis, I have always found this issue intriguing. I have often wondered if I was super-rich, would I be more like Bill Gates or more like Steve Jobs. How much money is enough once you are extremely wealthy? Personally, I would like to think I would be more like Bill Gates.

Based on the above discussion, I found this article, taken from the Harvard Business Review, posted on Business Week.com by Maxwell Wessel extremely interesting. The premise of Mr. Wessel’s article is that although both leaders are highly admirable, and in fact Mr. Jobs may have been our generation’s most important leader in the world of business, Bill Gates has used his talents in ways that stretch beyond the business world.

Mr. Wessel states “As much as I love Apple, Inc., I would happily give up my iPhone to put food on the plates of starving children. Steve Jobs turned his company into a decade long leader in the truly new space of mobile computing. Bill Gates decided to eliminate malaria. Who do you think we should be putting up on a pedestal for our children to emulate?”

I must say that I tend to agree with Mr. Wessel. However, the Jobs philanthropic legacy is far from over, as supposedly his wife Laurene Powell Jobs, is very philanthropic in nature and the apple may turn :).

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.