Diamond Hill’s Jason Downey on the Art of Investment Research, Small Cap Investing, and more

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Additional Information:

• The Diamond Hill Interactive Valuation Model
• Diamond Hill 1Q profit soars 59%

Catch-up Contributions Can Boost IRA Retirement Savings

The annual IRA contribution limit for 2007 is $4,000, but an individual age 50 or older can instead contribute up to $5,000 to his or her IRA.

Catch-up contributions can have a significant impact on IRA retirement savings, as illustrated by the graph below. The example assumes a 6% rate of return, maximum catch-up contributions of $1,000 at the end of every year, maximum regular IRA contributions at the end of every year ($4,000 in 2006 and 2007, $5,000 in 2008 and beyond1), tax-deferred growth, and an investment horizon of 20 years.
Read the full article . . .

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Additional Information:

• Survey: Many Workers Financially Unprepared for Retirement
• The Basics on Catch-Up Contributions Allowed In 401k Plans

Fighting Inflation with TIPS

Treasury Inflation-Protected Securities are fixed-income investments that are indexed for inflation. See if they can do anything for your portfolio.

It's easy to see how inflation affects your daily life. Gas prices are higher. Electric bills are steeper. Wallets are thinner. But what inflation does to your investments isn't always as obvious. Let's say your money is earning 4% and inflation is running between 3% and 4% (its historical average). That means your so-called "real return"--the stated return minus inflation--is only 1% at best. After you subtract any account fees, taxes, and other expenses, you could actually end up with a negative number.Read the full article. . .

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Additional Information:

• NASD Web Page on TIPS
• Treasury Inflation Protected Securities – TIPS (and other links)

IRS’s Private-Annuity Rule Roils the HNW Universe

If the IRS restricts private-annuity sales, it will be a major shift, not the typical minor tweak—and it might be retroactive. So if you have ever used this tax strategy, now is the time to check out the situation.

After setting up a complex array of trusts to avoid paying hefty estate taxes and drafting a will that will cover investing and philanthropic goals, many still worry that their wealth may make their children and grandchildren complacent and unambitious—or worse, that it will fall to an heir’s ex-spouse. To overcome these fears, some choose to create a family bank. A family bank combines a dynasty trust with a limited liability corporation (LLC). This setup can create long-term tax advantages for your estate upon your death. It also allows you to limit how much of your assets are passed on to heirs outright, while still providing a financial resource from which they can borrow money throughout their lives. Read the full article. . .

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Additional Information:

• A Private Annuity Primer
• Treasury and IRS Update Rules on Exchanges for Annuities

Dealing with the Threat of Identity Theft

If Bill Gates and Oprah Winfrey can be victims of identity theft, it’s time for the rest of us to take steps to protect ourselves. Where are you vulnerable? Find out what you can do.

Imagine receiving an e-mail, purportedly from the Social Security Administration, that simply asks you to confirm your Social Security number to make sure you receive your annual benefit increase. It looks perfectly legitimate, down to the government agency’s logo, but in fact, it’s a scam. Read the full article. . .

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Additional Information:

• Federal Trade Commission’s Identity Theft Website
• Motley Fool’s Tips on Dealing with Identity Theft

Warren Buffett’s Annual Letter to Shareholders

Warren Buffett, investment world demigod, shares his no-nonsense wisdom about reinsuring risk, philanthropy, succession planning, and executive compensation. He also pays tribute to his friend Walter Schloss, a remarkably successful investor who never had his mind closed by a college degree.

Every year Berkshire Hathaway CEO Warren Buffett writes an open letter to his shareholders. And every year Buffett generously shares his no-nonsense wisdom about business and investing. 

This year’s missive is no exception. His topics included how Berkshire goes about reinsuring the risk of other insurers, philanthropy, and how he plans to replace himself. For margin of safety investors, Buffett’s discussion of executive compensation as well as his discussion of friend and fellow money manager Walter Schloss are especially fascinating. Read the full article. . .

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Additional Information:

• Warren Buffet’s Letter to Berkshire Hathaway Shareholders
• Warren Buffett, The Superinvestors of Graham-and-Doddsville

Palmerston Group provides fee-only financial and investment management services based on fundamental analysis and margin of safety principles. Palmerston’s approach to planning and wealth management is a blend of financial strategy, investment philosophy, and risk management. At the core of this approach is the conviction that preserving and building wealth is best achieved through a process of careful research and investigation in which Palmerston Group seeks both to identify marketable securities trading at a discount to intrinsic value and to allocate clients’ capital with other investment managers (through mutual funds and managed accounts) who do the same. Please contact Palmerston.

For more information, visit www.palmerstongroup.com or call 732-248-5777.