Corrections or additions?
These articles by Kathleen McGinn Spring were prepared for the
March 28, 2001 edition of U.S. 1 Newspaper. All rights reserved.
Stocks Are Still the Way to Build Wealth
The Federal Reserve has taken an ascending stock market,
built on a wonderfully sound U.S. economy, and plunged it into a
unnecessary period of pain. This is the view of Ram Kolluri,
owner of Global Value, an Alexander Road-based financial consulting
"My goodness," Kolluri says, "what we’re going through
now was inflicted by the Federal Reserve for no reason." Alan
Greenspan, the Fed’s much-watched leader, was looking at Japan’s
he conjectures. "Japan let a bubble build in all its assets —
stock, real estate. They paid $62 million for that Iris painting.
They paid $2 billion for Rockefeller Center." When he raised
rates last year, Greenspan believed the United States was building
a similar asset bubble. "He thought he was serving the long term
interests of the country by not letting it go on," Kolluri says.
Kolluri says inflation was not a problem here. "The bond markets
have been saying for the last year `What inflation?’ The federal
is running huge surpluses. Now in the last two months the Federal
Reserve Board cut interest rates. Let someone explain to me what
in six months in inflation. Nothing."
Kolluri says the stock market, feeding on a strong economy and low
inflation, will rise again, probably in 12 to 18 months. But there
is another factor that is working to erode portfolio value. "There
has been more damage done to people’s finances," he says, "by
AOL — or any other Internet service you want to name. People go
to their computers first thing in the morning. They check their
before they look at the news. They follow their stocks minute by
move their 401(k)s from pillar to post. It’s sheer madness."
Kolluri, whose company has $200 million under management, urges a
much more disciplined approach on his clients. He is a proponent of
long term investing, and is not ready to give up on the stock market
as the best way to build wealth.
When the market was "sky high," Kolluri began looking for
larger offices for his company, which has grown from three employees
to nine during the current bull market. After looking for larger
in Carnegie Center for over a year, he has moved Global Value from
1,750 square feet in 130 Carnegie Center to 6,000 square feet of new
construction at 821 Alexander Road.
The new offices are "just 700 feet from the train station,"
Kolluri says. This is a big plus because the company maintains a small
office in Manhattan. "I’ve been in five, six times in the last
two weeks," he says. Besides a location that doesn’t require a
parking spot in the Princeton Junction lot, the new building offered
Global Value a chance to design its own space. The firm hired
Architect of Millstone to create its interior. The builder
the design into the new building, which sits on the corner of Vaughn
Drive and Alexander Road.
Global Value is counting on growth, according to Kolluri, who says
he is just as glad the firm made the move during a slowdown. This
period will give his company time to gear up, he says. The new offices
were designed to hold 17 people, which would nearly double the firm’s
current personnel roster.
Kolluri, a native of Rajahmunbry, India, who studied business at Pace
University, started Global Value in 1982 after leaving Merrill Lynch.
He clearly recalls the panic that followed the 1987 market crash.
"I was on Nassau Street then," he recalls. "People were
saying, `We’re living in a bubble! Oh my God, the Dow should never
have traded more than 1,000!’"
Fears were overblown then, and they are overblown now, he says. Some
of his clients are worried, and have been calling. But no one has
liquidated so far. Kolluri puts his clients on a course toward
security using "building blocks," and if they don’t hold,
he doesn’t think anything will. His recipe for wealth includes the
pay off everything, including their mortgages. "If you minimize
short term financial needs," he says, "your portfolio can
worker harder. It can work longer for a higher yield." Nothing
beats stocks, he says, but they are not for any investor with a short
time horizon. "If you have one day less than five years, do not
buy stocks." Banishing the pressure of bills buys investors
and frees their dollars to be put to work for the long haul.
into the markets they should salt away the equivalent of two years’
salary in CDs or money market funds, Kolluri says. No matter what
the markets do, these cash equivalents will give investors flexibility
— and a significant hedge against worry.
the investor is ready to move into the markets. The best way to do
this, he says, is to invest in the S&P 500 through an index fund.
"Buy all the companies," he says.
portfolio of 25 to 35 blue chip stocks. "Stay with the blue
Kolluri says. "They’ve been around for a long time for a
While he is opposed to chasing hot tips on technology stocks, Kolluri
says "America’s future is technology," and many blue chips
are technology stocks in disguise.
"Wal-Mart is a technology company," he says. "They’ve
written the book on logistics. It’s more a logistics company than
an old-line retailer. Wal-Mart could be selling cars, anything."
The same is true for many pharmaceutical giants, he says, which are
really "huge information technology companies on the frontier
of research using computer simulations."
of older investors, says Kolluri. They also can be part of an
strategy for anyone who experiences motion sickness and sleeplessness
during market swings like this one. The trade off, he says, is lower
return. The advice on who should buy bonds has been tempered to some
extent by changing demographics. Where 50 was seen as old not too
long ago, Kolluri, who puts "old" at more like 75, sees people
in their 50s as being middle aged. This being the case, a longer
time frame, one with room to let stocks grow might cut the percentage
of bonds held even by those in their 50s and 60s.
the stock market, he urges investors to be patient. Recent interest
rate cuts can work, but he says the economy is like a sick man just
been given some much needed medicine. "Give the body some
he says. "You can’t expect him to be up and jumping around."
On its website (www.njscpa.com) the New Jersey
of Certified Public Accountants offers help with a multitude of vexing
tax questions that arise at this time of year. Among the group’s most
helpful advice is that for small businesses grappling with the
of complying with tax laws while at the same time trying to take
of all the tax benefits of owning a business. Some of the issues
the potential for a new business and getting that business started
are capital expenses, which can be recovered by depreciation or
Under tax law, you may elect to depreciate or amortize your start-up
costs over a period of 60 months or more if two conditions are met:
(1) the costs are ones that would be deductible if they were paid
or incurred to operate an existing business and, (2) the costs were
paid or incurred before you actually began business operations. In
the event you decide not to go into business, any costs you paid to
investigate the possibility of going into business are considered
personal costs and are not deductible. Costs you paid in your attempt
to actually start or purchase a specific business can be claimed as
a capital loss.
or property to charities. Unincorporated business owners may make
and fully deduct cash gifts of up to 50 percent of adjusted gross
income and may contribute appreciated property of up to 30 percent
of adjusted gross income. Unless your business is a C Corporation,
you deduct charitable contributions made by the business on Schedule
A of your personal tax return. A corporation may deduct on its
return charitable contributions that total not more than 10 percent
of the corporation’s modified taxable income. A considerable tax
exists for business owners who donate property that has appreciated
in value. In addition to a deduction for the full market value of
the property, the donor avoids tax on the appreciation that has built
you may be able to further trim your business’s tax bill by claiming
business tax credits for which your business is eligible. Tax credits
are generally more advantageous than tax deductions, because credits
are subtracted from your tax bill, while deductions are subtracted
for the income on which your tax bill is computed. Tax credits are
available for certain taxes and investments, for hiring certain
workers, and for actions that benefit the environment. The tax credit
rules are complicated and typically require professional advice.
services and are paid according to the value of their work, there
are several benefits to employing your children in your business.
First, the taxpayer receives a tax deduction for compensation
Second, if the business is a sole proprietorship, payments for the
services of your child under 18 are not subject to social security
taxes. Third, the wages the child earns are not considered earned
income and are not subject to kiddie tax rules.
loss to business property as a result of a natural disaster are
for tax breaks to offset those losses. Special rules apply if the
losses occur in a location declared a federal disaster area. In such
cases, a business owner can treat the casualty loss as if it occurred
in the year immediately preceding the tax year in which the disaster
actually occurred. This action expedites the taxpayer’s refund.
are designed to work in conjunction with high-deductible health
plans. They are available to self-employed individuals and owners
and employees of small businesses. MSAs are similar to IRAs in the
sense that employers and employees can make tax free contributions
to the MSA. Instead of withdrawing the funds at retirement, the
withdraws the funds to pay for qualified medical expenses. Assets
not spent on medical expenses accumulate from year to year and can
remain invested on a tax deferred basis to fund future medical
or to supplement the taxpayer’s retirement savings.
selling prices or in the usual way because of changes of style or
damage may be valued for deduction purposes at bona fide selling
less the direct costs of disposition. To realize expected losses,
take steps to dispose of obsolete inventory.
of the most valuable tax breaks available to small business owners.
As a business owner, you can personally deduct contributions to your
own qualified plan, and your company can deduct contributions made
on behalf of its employees. The government has a number of retirement
plan alternatives in place for small business owners. SEPs, Keoghs,
and SIMPLE plans all offer significant tax advantages. Depending on
the plan and your earnings, you may be able to shield as much as
of your income.
redefined the term "principal place of business" to include
a home office that is used by the taxpayer to conduct administrative
or management activities if there is no other fixed location where
the business owner conducts such activities. In doing so, the act
opened the home office deduction to those people who manage a business
from their home, but also provide a service and meet clients at
location. Under previous tax law, unless you met with clients,
or patients on a regular basis in your home office, you could not
claim the home office deduction. However, the crucial requirement
that your home office be used "regularly and extensively"
for business remains in effect.
Corrections or additions?
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