Archives for May 28, 2018

If you received something sparkly under the Christmas tree last year, how do you best care for it? And what’s it really worth anyway?

Shital Naik, a professional diamond grader qualified by the Gemmological Institute of America working for professional jewellery valuations company Central Diamond Administration, answered the following questions:

1. I’m going through a divorce. How can I resell my diamond ring for the value it’s actually worth?

You firstly need to understand that the value of your ring is not how much you paid for it. The retail price of an item includes a jeweller’s costs and mark-ups. That is not attributed to the item’s worth. This is why most jewellers do not buy back jewellery from customers.

If you are looking to resell, you should know the value of the components that make up the ring. For this, you need to obtain an appraisal done by a qualified, professional jewellery valuator and diamond grader. You should also look for valuators who are willing to back their valuation with an offer for purchase.

The valuation methodology must be explained and clearly stated. If you do not have a diamond certificate from a grading laboratory, the valuator will need to professionally grade your diamond, which will entail the removal of the diamond. Professional valuators will educate you enough to ensure that you know your diamond’s real worth.

2. I’ve received some heirloom jewellery from family. How can I find out what it’s worth?

Heirloom jewellery isn’t often accompanied by documentation. You should go to a professional valuator with the correct qualifications for their opinion. Note the valuation has to be thorough – not the one-page document you get from a jeweller.

After this, you may want to go one step further and have the valuator safely remove the diamonds and send them for grading to the local office of a reputable laboratory such as the Gemmological Institute of America.

The diamond is graded by the laboratory and is laser-inscribed with a report number, then sent back with the necessary certification and is reset at a minimal fee into your ring. Due to this, you will always be able to access the diamond certificate anywhere in the world. This way, your diamond ring will always be identifiable, so even your granddaughter will have the correct certification, if remains an heirloom for generations to come.

3. I have heard interesting things are happening with diamonds as an asset class. Are diamonds about to ‘take off’?

How can I invest to get in on the action?

Diamonds have been in the news lately, thanks to the recent creation of a Singapore Diamond Index (SDiX) that can be traded on and India having started trading in diamond futures.

It’s important to note that this isn’t available in South Africa currently. To invest in diamonds, you need to understand all the aspects about diamonds and deal with an honest and transparent diamond expert. Buying jewellery is not necessarily an investment – beware of all the mark-ups and costs that are part of the jewellery retail value. These amounts are not part of the intrinsic value of a diamond.

There have been many attempts at trying to form an asset class for trading in diamonds. However, not one diamond is identical to another. Based on the conditions under which diamonds are formed, diamonds can be likened to people, in that no two people have the same fingerprint. With the advancement of technology, attempts to form this asset class will continue.

However, the big question remains who will determine the pricing index for diamonds. Pricing will need to be accepted as the global standard for the asset class to be successful, much like gold is. This has not happened yet, and past attempts have been unsuccessful, so be cautious.

4. I have come into possession of some diamonds, and am keeping them in a safety deposit box at a reputable bank. Is this the best way to manage my diamonds?

As we have seen in the news, these vaults are not necessarily safe. One needs a thorough valuation of all items first and then consider insuring the items.

Often, people feel that the premiums are exorbitant. However, proper valuations help with this. We did a case study and the results reflected that jewellery valuations are not standardised and regulated and thus values are ridiculously inflated. A diamond ring professionally valued at R30 000 was valued at a minimum of R65 000 and up to R250 000 by jewellers! A professional, transparent and qualified valuation often means lower premiums.

Professional valuations should contain most, if not all, of the following:
• An accredited jewellery professional;
• Diamond in-depth and visual characteristics;
• Metal characteristics;
• Procedure to arrive at market value;
• Item characteristics;
• Qualified appraisers;
• Finish noted;
• Manufacture noted;
• Hallmark/trademark noted, if there is one;
• Records on file;
• Market rates; and
• Images.

DIAMONDS ENTER THE FINANCIAL MARKETS

As of October 10 last year, investors in Singapore and select other cities in the world could trade something new on an investment exchange – diamonds.

According to the Singapore Diamond Mint Company, its Diamond Bullion product, exclusive to the Singapore Diamond Investment Exchange (SDiX), means that diamonds can be traded on a global investment exchange at market-driven, transparent pricing – for the first time in history.

“The new Diamond Bullion presents the opportunity to invest in diamonds as a safe haven asset for the first time,” says Alain Vandenborre, the founder and chairperson of the SDiX and director at the Singapore Diamond Mint Company. “It is designed to bolster investment in diamonds as an asset class.”

Experts warn that this is unchartered territory, as diamonds have simply never been standardised enough to be a reliable asset class for investors. Nevin Sher of Johannesburg’s Central Diamond Administration has concerns.

“I can be a layman and invest in the stock market, and the exchange ensures all the due diligence and so on is in place – but diamonds have to contend with an existing lack of transparency in the industry. When the world economy is doing well, diamonds will do exponentially well – much more so than other asset classes. Diamonds can go up 20 to 30 percent in a year, but they can also drop 40 percent overnight. This is something where you really need to be an expert in what you are trading,” Sher says.

“Diamonds are one of the most difficult things to standardise, because a one-carat diamond can have over 100 different combinations of colour, clarity, cut, weight, inclusion and more, and each of these has a different value. So, two different products could vary greatly with the exact same specifications on paper, and even the same stone could vary based on opinion. Gold is transparent – everyone in the world agrees that this much is worth this amount, so the price is fixed.”

Vandenborre is more confident. “We believe that diamonds have the potential to rival gold’s status as a secure store of wealth and an alternative investment; hedging against inflation, volatility and currency deflation,” he said when asked to comment. “When gold bullions were introduced, they grew from $250 million in 1900 to $200 billion today. The diamond bullions traded on the SDiX will very likely follow a similar path.

“The Diamond Bullion is a fintech product using proprietary technology to authenticate and trade at fully transparent pricing on the SDiX, in a tamper-resistant zirconia case with unique optical signature recognition and a serial number that can be instantly authenticated via a secure mobile app (both Android and Apple). The GIA certificates of every diamond within the Diamond Bullion are pulled from the server and shown on the app – removing the need to have any expertise of diamonds.”

South African investors may be able to get in on the action.

“SDiX is a global exchange, which means investors from South Africa will be able to invest, purchase and trade the Diamond Bullions as long as they instruct their trades via one of the broker members of SDiX,” Vandenborre says. “The exchange currently has no stock or commodity broker in South Africa; London and Dubai are markets where South African investors can trade. But it would make sense to have brokers from South Africa to solicit membership of the exchange.”

Medicare Advantage plans attract seniors with their appealing price tags and promise of comprehensive health coverage in one convenient package.

But are these plans a disadvantage for people with serious health problems?

That’s the question raised by recent studies.

A 2017 review by the U.S. Government Accountability Office, for example, found that in some Advantage plans, enrollees in poor health were substantially more likely to dump the plan than those in good health.

A recent study by Brown University researchers found that Medicare Advantage enrollees are more likely to enter lower-quality nursing homes compared with people on original Medicare.

Earlier studies also have found that people using high-cost services, such as nursing home care, disproportionately switch from Medicare Advantage to original Medicare.

Medicare Advantage “tends to work for people when they are relatively well,” said Judith Stein, of the Center for Medicare Advocacy. “But if they become ill or injured and really need a significant length of care, they’re not as well served.”

Yet seniors flock to Medicare Advantage plans offered by companies that contract with Medicare.

Many of these plans combine basic Medicare coverage with drug, dental and vision coverage, and the premiums are often cheaper than combining original Medicare Part B, a Part D prescription-drug plan and a supplemental “medigap” policy.

In 2017, roughly one-third of all Medicare beneficiaries were enrolled in an Advantage plan, up from 13 percent in 2004.

The studies questioning Advantage plans’ benefits for sicker patients are piling up at a time when the Centers for Medicare and Medicaid Services is making a push to drive Advantage enrollment higher.

To be sure, some studies have found benefits for Medicare Advantage enrollees, including greater use of preventive care services.

But for people in poor health, the evidence on health care access and quality decidedly favors original Medicare over Medicare Advantage, according to a Kaiser Family Foundation review of 40 studies published between 2000 and 2014.

Of course, many people are in excellent health when they sign up for Medicare — and the drawbacks of Medicare Advantage might only become apparent when health declines. Advantage plans have limited networks of providers, and enrollees going out of network face higher costs.

Patients’ inability to access their preferred doctors or hospitals is a factor driving sicker enrollees to dump Advantage plans, the GAO reports.

Advantage plans’ limited provider networks also might contribute to the gap in nursing home quality between Advantage plans and original Medicare, the Brown University researchers found. (Medicare will cover nursing home care if you need skilled nursing after a hospitalization.)

The researchers studied all Medicare beneficiaries newly admitted to a nursing home between 2012 and 2014, finding those on Medicare Advantage were substantially more likely than those on original Medicare to enter lower-quality nursing homes.

In most cases, your retirement savings is not permitted to be used until you reach, well, “retirement age” as defined by the IRS. However, there are some notable exceptions that can allow you to use your retirement savings penalty-free, even if you’re much younger.

Here’s a rundown of some of the common early withdrawal exceptions and what happens if you decide to withdraw your retirement savings early if you don’t qualify for one of them.

What is “early” anyway?

Generally speaking, if you tap into your retirement savings after you reach the age of 59 1/2, you won’t be assessed a penalty. For all of the major types of retirement plans — IRA, SEP, SIMPLE IRA, 401(k), 403(b), 457, and others, this is considered to be the acceptable age for withdrawals.

It also is important to point out that this age threshold applies regardless of whether you’re working or not. For example, if you’re still working but withdraw $10,000 from your traditional IRA at age 60, it completely is allowable.

So an “early” withdrawal from your retirement savings is defined as one that takes place before you turn 59 1/2 years old. Unless you qualify for an exception, taking an early withdrawal from retirement savings is subject to a 10% penalty from the IRS.

With that in mind, the exceptions available depend on whether you have your retirement savings in an IRA or in a qualified retirement plan like a 401(k).

If your retirement savings are in an IRA

The early-withdrawal exception rules for IRAs apply to traditional and Roth IRAs, as well as SEP-IRAs, SIMPLE IRAs, and SARSEP plans. If your retirement savings are in one of these types of accounts, you can use your money penalty-free for the following reasons:

• To pay for qualified higher-education expenses — for you or someone else, such as your child.
• To pay toward a first-time home purchase either for you or your spouse, child, or grandchild, with a maximum of $10,000.
• To pay health insurance premiums while you’re unemployed.

In addition, there’s a Roth-specific exception. In a Roth IRA, you have the ability to withdraw your original contributions (but not any investment gains) at any time and for any reason. For example, if you’ve contributed $20,000 to a Roth IRA over the past decade and your account is now worth $35,000, you can withdraw as much as $20,000 penalty-free, even if you don’t qualify for one of the other exceptions.

If your retirement savings are in a 401(k) or other “qualified” retirement plan

Unfortunately, if your retirement savings are in a 401(k) or other type of qualified retirement plan like a 403(b) or 457, you can’t use the exceptions for college expenses or first-time homebuyers. However, there’s one major exception you can potentially use that IRA owners cannot: If you’re 55 years old or older (50 or older for public safety or political employees) and no longer working for the employer for whatever reason, you qualify for the “separation from service” exception and can access your retirement savings penalty-free.

Exceptions that apply to all retirement accounts

Finally, there are some early withdrawal exceptions that apply regardless of the type of retirement account. Specifically, you can withdraw early from your retirement savings:

• To pay unreimbursed medical expenses in excess of 7.5% of AGI.
• If you become totally and permanently disabled.
• If you agree to take the withdrawals as a series of “substantially equal payments” that last for at least five years or until you reach age 59 1/2, whichever comes later.
• If you’re a military reservist called to active duty.

What if you don’t qualify for an exception?

To be clear, you have the ability to withdraw your retirement savings whenever you want, provided that your plan allows it. (Note: Qualified plans like 401(k)s aren’t required to allow so-called “hardship” distributions, although most do.) In other words, I’m 36 and have the ability to withdraw money from my traditional IRA right now if I want to. However, I’d have to pay a 10% IRS penalty for the withdrawal, and that’s on top of the income tax I’d have to pay, as well.

In rare circumstances, it can certainly make sense to withdraw money from your retirement savings even if you don’t qualify for an exception (say, if you’re behind on your mortgage and are about to lose your home). Just be aware that this option can be quite costly, so it should generally be used as a last resort.

Billions of dollars are at stake as boomers decide what to do with the $5.3 trillion they’ve invested in company-sponsored 401(k) plans when they retire. Leave the money where it is? Roll it over to an Individual Retirement Account (IRA) at a financial firm? For many, it’s a head-scratcher.

The topic is especially timely with the Wall Street Journal recently reporting that the U.S. Department of Labor is looking into whether Wells Fargo has been pushing retiring clients to move their 401(k) money into more expensive IRAs at the bank.

Financial advisers say there are pros and cons to leaving your 401(k) in place and to rolling it over into an IRA.

“It depends on the individual needs of the employee and the quality of the plan,” says Harris Nydick co-founder of CFS Investment Advisory Services in Totowa, N.J., and author of Common Financial Sense, Simple Strategies for Successful 401(k) and 403(b) Retirement Plan Investing.

“There is not a one-size-fits-all when it comes to making this decision,” says Dan Houston, chairman, president and CEO of Principal Financial Group in Des Moines,

5 Reasons to Leave your 401(k) With Your Company

Here are five reasons to consider leaving your 401(k) with your company — as 22% of 401(k) owners did when exiting, according to an Ameritrade survey — rather than moving it to a Rollover IRA when you retire:

1. You can pay lower fees Large companies with hundreds or thousands of employees use their sheer size to negotiate lower fees for their 401(k) plans. Employees then get to take advantage of fees that are lower than what they’d probably never get investing on their own in an IRA.

“One of the benefits of staying inside the 401(k) plan is they have a better fee structure, more competitive pricing and oversight,” says Houston. “You have an employer working with an adviser picking investment options and providing monitoring.”

2. You can avoid an early-withdrawal penalty “If you are 55 years or older, left your previous company after reaching age 55 and need to take a withdrawal from your 401(k), then it is best to keep the money in the 401(k),” says Zaneilia Harris, president of Harris & Harris Wealth Management Group in Upper Marlboro, Md. “You can take an early-access distribution without the 10% penalty that you would be subjected to if you roll the funds into an IRA.” That penalty ends at age 59½ for IRA.

3. You have access to loans and online help “It depends on the employer, but you may retain borrowing capability — up to $50,000 or 50% or your assets,” says Eric Bailey, founder of Bailey Wealth Advisors in Silver Spring, Md. “Also, you still have what I would call the electronic retirement planning software usually attached to employer plan which may assist on keeping your retirement on track.”

4. You can stay with the investments you know and prefer Your company 401(k) may have proprietary investments or mutual funds that you like, are familiar with and might not be available elsewhere.

5. You can get protection from creditors If you’d like to protect your retirement money from creditors and bankruptcy, a clause in the Employee Retirement Income Security Act of 1974 keeps your 401(k) money out of the hands of creditors.

5 Reasons to Roll Over Your 401(k) Into an IRA

And here are five reasons to roll over your 401(k) to an IRA, as 34% of 401(k) owners did when leaving their companies, Ameritrade said:

1. You will have more investment choices “The benefit of rolling a 401(k) into an IRA is you have a wide array of investment choices you can pick from,” says Nydick. “That can be good, and that can be bad. Hopefully, you are getting some good advice.”

2. You will have more withdrawal options. If you are retired and taking the money as income, a 401(k) can be inflexible, says Jeanne Thompson, head of thought leadership at Fidelity Investments. Depending on your company plan, a 401(k) might limit withdrawals to quarterly or annually. “If you want an income stream and they only allow for annual deductions, you will be in a difficult situation,” she says. “IRAs allow a lot more flexibility, allowing you to take distributions as you need them.”

Taking money from 401(k)s in installments is “cumbersome and, in many cases, not allowed,” says Ken Moraif, senior advisor at Money Matters in Dallas. “In an IRA, you can — and very easily. If you take an income stream, you probably want to roll it into an IRA and set up monthly withdrawals that fit your budget. An IRA does give you more flexibility. “

Says Nydick: “When it comes to distributions, I would lean a little more to an IRA. You have more control and you have an adviser or an 800 number. It’s much easier to change things around and customize.”

3. Your company may want you to take your money “When you leave your 401(k) with a company you no longer work for, you have also left them with the administrative cost of handling your account,” says Moraif. “They don’t want to be your bookkeeper and custodian for all these things. At some point, they may encourage you to move your account away.”

4. You can get personalized advice Most financial services firms offer free advice to IRA rollover customers, usually through an 800 number. “You want to get good advice,” says Nydick. “The value of good advice picking and choosing your investments, is high. When markets get volatile, you’ll have someone who can walk you through it and keep you on course.”

5. You can get an annuity option People looking for guaranteed income in retirement may want to put some of their savings in an annuity. You can do that with a rollover IRA but many employers don’t offer an annuity option in their 401(k)s. And even if yours does, there might be a question of portability of the annuity if you leave that employer, Nydick says.

What Not to Do With Your 401(k)

Whatever you do, says Houston, don’t cash out your 401(k) money. “My number one piece of advice is this — keep it in the plan, roll it over into an IRA or convert it to lifetime income, but please do not cash it out,” he says. “People say ‘I want to [use the money to] buy a car.’ All you’ve done is mortgaged your retirement future. It’s bad math and it doesn’t end well for that participant.”