AllocationMaster: About: Features

With each quarterly software update of AllocationMaster™, many new features and enhancements are introduced. Recently there have been major capabilities added to AllocationMaster that improve its flexibility and usability.

Among the most recent features added to AllocationMaster are Section 529 Plan Asset modeling and Concentrated Stock position modeling. (Some of these features may not appear in certain customized editions of AllocationMaster).

529 Plan
529 plans are state-operated investment plans designed to aid families in saving for future college costs. Named for the section of the Internal Revenue Service code that created qualified tuition programs, 529 plans offer substantial tax benefits. Three of the main advantages of these plans are:

Earnings grow tax-free as long as they are in the plan and distributions are exempt from federal taxation if they are used to pay for qualified education expenses. Additionally, many states offer beneficial tax treatment for these plans.

There are no participation restrictions. Parents, grandparents, other relatives and even family friends can set up accounts on behalf of a beneficiary. There are generally no maximum income requirements.

The contributor retains control of the assets. The contributor determines when money is withdrawn and can change the beneficiary.

Qualified expenses may include tuition, books, tutoring, computer equipment, and room and board for beneficiaries attending an accredited post-secondary institution (public or private). Non-qualified distributions will be assessed a 10% penalty plus the earnings will be taxed as ordinary income. Penalties are not assessed in the event of death or disability of the beneficiary.

Beginning with version 7.1, AllocationMaster Windows will offer users the ability to model 529 plans as part of the client plan. Contributions into the 529 plan can be specified and education goals can be tagged for funding from the 529 plan. To learn more about modeling 529 plans in AllocationMaster, see the on-line help.

Concentrated Stock
Modern portfolio theory tells us not to put all of our eggs in one basket, or in one company. Diversification is an obvious step for a tax-exempt investor, but what about an investor who faces substantial tax liability if he sells his stock? Do the benefits of diversification outweigh the tax impact of liquidation? For most investors, diversification is an essential step in preserving their wealth.

Investors may find themselves with a sizable position in a single security with a low cost basis as a result of a fortuitous investment, executive compensation packages or from the sale of a business for stock in a publicly-held company. For employees with a concentrated position in their company, their exposure to this single company grows each day because their basic income, retirement plan, incentive compensation and investment income are all linked to the performance of their company.

Concentrated stock positions are inherently risky, they expose the investor to every risk a company can face with the upside potential of a single company in a single industry. While some stocks have outperformed the market and doubled or tripled in value, most have not. In the bull market of 1993 - 1999, roughly one out of six stocks in the Russell 1000 lost money. Reports on Wall Street darlings comfort investors but there are plenty of big losers in every industry from dot com to retail and transportation (think Enron, eToys, or Kmart). When a stock price plummets, the investor may not have time to react. Previously stellar growth becomes meaningless if a stock price declines 100% and the investment is left worthless.

AllocationMaster Windows allows users to model concentrated stock positions. A liquidation schedule may be specified in addition to information about the expected risk and return on the stock. To learn more about concentrated stock positions in AllocationMaster, see the on-line help.

Internet Downloading
AllocationMaster new installations and quarterly updates can be efficiently downloaded from the dedicated AllocationMaster web site at www.allocationmaster.com. The quarterly update can be installed as soon as it is released--no more waiting for CD's to arrive in the mail. If you lose your CD or suffer a computer problem, a back-up copy can be quickly downloaded. To download the program, click on the Downloads item on the AllocationMaster home page.