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WSJ 2
SUNDAY, JANUARY 25, 2015
THE AGGREGATOR
Raising TurboTax Prices, Intuit Kicks a Hornet’s Nest
The ECB and You
What happens in Frankfurt
doesn’t necessarily stay in Frank-
furt. While the European Central
Bank—based in Frankfurt—announced actions on Thursday to
boost the eurozone economy, the
effects are already being felt in
U.S. financial markets, and could
benefit Americans.
A Wall Street Journal report
Wednesday that the ECB was
considering a new stimulus package gave U.S. stocks a modest lift
and triggered a pullback in U.S.
government bonds, causing their
yields to rise. U.S. Treasury yields
influence
borrowing
costs
throughout the economy. Stocks
and bonds rallied and the euro
dove after Thursday’s move.
Among the reasons for the
stronger dollar and weakening
euro were market expectations
that the ECB would make such a
move at the same time the U.S.
Federal Reserve is preparing to
start raising interest rates. A
strong dollar can benefit U.S. consumers by lowering the price of
imports and the cost of traveling
abroad. But it also can curb U.S.
exports and corporate profits.
Fed officials generally believe
the benefits to the U.S. economy
of stronger eurozone growth
would outweigh the negatives of
a stronger dollar. Collectively, the
Heads in the Clouds
Top 10 cities globally by total height of skyscrapers built
in 2014.
1,400
1,200
1,000
800
600
400
200
0
Source: Council on Tall Buildings and Urban Habitat | WSJ.com
Reuters
19 countries that share the euro
represent one of the U.S.’s largest
trading partners, and as a group
are at risk of a third recession in
six years. If the ECB’s new bondbuying program works as intended, it should spur economic
activity there, which should mean
more business for U.S. companies
and possibly more demand for
U.S. workers.
More broadly, Fed officials see
the threat of weaker growth
The Headwinds Battering Active Mutual-Fund Investors
It’s widely accepted these
days that most actively managed
mutual funds routinely deliver
below-average results and underperform their benchmarks.
But C.
Thomas
Howard, director of research at
Denver-based
AthenaInvest,
begs to differ:
Chuck Jaffe
“Ninety percent of funds
are superior stock pickers,” he
says, and 80% are good enough
to cover the fees they charge investors.
Mr. Howard cites a wide range
of research, some of it his own,
showing that 80% or more of equity-fund managers beat their
Erin Beach
BY CHUCK JAFFE
benchmark until fees and costs
come into play.
But if 90% of managers are
good stock pickers, expense ratios alone don’t explain why so
many funds are mediocre. That,
says Mr. Howard, is the result of
what he calls “the portfolio tax,”
a drag on performance created
by three significant burdens:
1 Asset bloat. When funds
get big, the chances for superior
performance shrink. That’s why,
Mr. Howard explains, so many
small funds get off to a great
start, attract assets because of
their success and then regress
when the manager struggles to
extract market-beating returns
from a larger portfolio.
2 Closet indexing, where active portfolios act mostly like an
index fund because financial advisers and investors want returns
in line with expectations for the
sector or the market.
“You’re asking managers to
track an index and beat it at the
same time, and coming close to
the index is the easy, safe part of
the job,” says Mr. Howard. “Pursuing the other goal of beating the
index means diverging more from
the index; if they do that and surprises happen—and they do—that’s
when investors are most disappointed.”
3 Over-diversification. Mr.
Howard says virtually all of a manager’s outperformance comes from
the portfolio’s top 20 holdings.
Adding stocks contributes little to
performance, and may even hurt it.
David Snowball, founder of MutualFundObserver.com and a champion of small, lesser-known, concentrated funds, says that while
Mr. Howard’s suggestion that most
active managers can beat the market is counter-intuitive, the effects
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prepare their taxes online faced
similar issues last year.
As news of the change started
to spread two weeks ago, longtime users took their outrage to
the Internet. On Amazon.com,
reviewers posted more than
1,200 negative comments, complaining of “bait-and-switch” and
“price gouging.” (Journal readers
sounded off in a blog post.)
“The company seems intent
on fleecing the customer by increasing the price with no product improvement,” says Don
Rickelman, a retired entrepreneur in Naples, Fla. In the past,
he says, he has used TurboTax
Deluxe to report his investments,
but now, like many other users,
he is considering alternatives.
TurboTax spokeswoman Julie
Miller says customers surprised
by the change can call the company at 800-445-1875 and “we
will work with them on a caseby-case basis.” Several who have
called said they were given free
downloads of TurboTax Premier.
—Laura Saunders
The Wall Street Journal
Ti
Intuit, maker of the popular
TurboTax tax-preparation software, has infuriated many longtime users by requiring them to
buy more-expensive software to
complete their 2014 tax returns.
Starting this year, people who
prepare their taxes on a personal
computer can’t use TurboTax Deluxe if they want to electronically file common tax forms, including Schedule C for a
business, Schedule D for capital
gains and losses or Schedule E
for rental property. Instead, they
must upgrade to the Premier or
Home & Business versions—
which cost up to $30 more than
the $50 Deluxe version as of
Thursday.
Customers with simpler returns face a similar issue: They
can no longer use TurboTax Basic if they want to itemize deductions (such as mortgage interest or charitable donations)
on Schedule A, instead of claiming the standard deduction of
$6,200 for a single filer or
$12,400 for a married couple.
Now, they will need to upgrade
to TurboTax Deluxe, which costs
up to $30 more than the $20 Basic.
People who use TurboTax to
of the portfolio tax are real.
“The industry is about making
profit for the fund adviser, and
fund advisers make profits by
drawing and holding assets, and
the way you draw and hold assets
is by not scaring people,” Mr.
Snowball explains. “So if you can
get a couple of decent years together and a decent story and
then slide quietly into mediocrity,
it’s a recipe for success for your
fund company, and a recipe for
disappointment for investors.”
Instead of looking for the mostskilled managers, Mr. Howard says,
investors should “look for funds
that impose the least portfolio tax,
and when those burdens start to
rise as the fund becomes successful and grows, there comes a point
where you get out and move on.”
Barring that, he adds, buy index
funds and don’t worry about beating the market.
overseas as the biggest risk to
U.S. economic prospects, which
for once are looking firm. In addition to the eurozone’s woes, Japan’s economic growth is anemic
and many major emerging-market economies, including China’s,
are slowing.
A more vibrant eurozone
would fuel the global economy,
stimulating global demand for
U.S. goods and services.
On the other hand, if the ECB
measures disappoint, the eurozone economy could remain sluggish or even contract, acting as a
drag on global and U.S. growth
for years to come.
—Pedro Nicolaci da Costa
Real Time Economics blog
WSJ.com
The Flap Over 529s
President Barack Obama’s
push to tax college-saving accounts, including the popular
“529” accounts, would affect millions of Americans now stashing
money for their children’s education, stirring debate about how
to structure federal student aid
and how to define the middle
class.
The proposal, which has
sparked a public backlash but
faces dim prospects in Congress,
targets 529 accounts that
boomed after Congress passed
the tax breaks starting in 2001.
States promote the plans as a
way for middle-class parents to
afford escalating college costs.
The president’s push, part of a
broader tax overhaul unveiled
last weekend, would strip the
main federal tax benefit from the
plans by taxing any money
earned from future contributions. Currently, earnings aren’t
taxed and the White House says
existing funds would be shielded
from the new tax.
—Josh Mitchell
WSJ.com
Land of Giants
The world built a record 97
buildings that were 200 meters
(656 feet) or taller in 2014, and
for the seventh year in a row,
China completed the greatest
number of them, according to a
new report from the U.S.-based
Council on Tall Buildings and
Urban Habitat (see chart,
above).
China’s output of 58 skyscrapers was a 61% increase from its
previous record of 36 buildings
in 2013, according to the report.
If you were to stack all of China’s
new skyscrapers on top of each
other, they would reach 13,548
meters (44,449 feet) into the
sky—close to the altitude limit
for most commercial airliners.
While One World Trade Center in New York, at 541 meters
tall (1,776 feet), was the tallest
building completed in 2014, the
Chinese city of Wuxi was home
to three of the 10 tallest buildings erected last year.
—Alyssa Abkowitz
China Real Time blog
WSJ.com
Email: chris.gay@wsj.com
BARRON’S INSIGHT
ENCORE
Callaway: Teed Up, Ready to Play
You Need the Right Tools to Retire
BY DAVID ENGLANDER
Callaway Golf (ELY)
After struggling for a number of years, Callaway Golf is
getting its swing back.
Since CEO Chip Brewer
joined in 2012, the Carlsbad,
Calif., maker of golf clubs and
balls has been turning its fortunes around.
When Callaway (ELY) reports
its 2014 earnings in a few
weeks, the company is expected
to post its first annual profit
since 2008, of $14 million, or 17
cents a share. This year, earnings could nearly double to 30
cents a share, with more gains
expected in 2016.
Now selling for around $8,
Callaway’s shares were down
about 10% in 2014, as industry
weakness masked company improvements. Those issues look
temporary, while the turnaround appears to have legs. In
the next two years, the stock
could rise 50% or more.
Callaway is a global market
leader in golf equipment, generating roughly half its sales outside the U.S. It sells its irons,
woods, drivers, and putters under the Odyssey and Callaway
brands. Clubs account for just
over 60% of sales. The rest of
its revenue comes from golf
balls and accessories such as
golf bags and gloves. Sales totaled an estimated $890 million
in 2014.
Daily share price
As of Friday, 1 p.m.: $8.01
$11
10
9
8
7
6
2014
’15
Source: WSJ Market Data Group
Mr. Brewer, an industry veteran who had turned around
Adams Golf, has moved Callaway out of underperforming
businesses and shifted the
company’s focus to its core
brands.
Callaway has been churning
out new products such as the X
Hot and X2 Hot line of fairway
woods, Apex irons and a reintroduced Big Bertha driver.
The new clubs have been
well received by golfers, helping
Callaway boost its U.S. market
share to 18.8% in the third quarter of 2014, from a low of 13.9%
in 2012. The gains helped to
drive sales up an estimated 6%
last year. Mr. Brewer has been
making operational improvements, overhauling the supply
chain and streamlining manufacturing.
In the quarter that ended in
September, gross margins
ticked up to 43%, compared
with 40% a year earlier, reflecting the efficiencies. Management has said there’s plenty of
room for margin improvement.
Much depends on Callaway’s
ability to boost sales. Last year,
however, was a difficult one for
the golf industry. Problems at a
rival golf-club maker, TaylorMade, stemming from a poor
product launch, led to heavy
discounting.
Also, fewer people are playing golf today than in the past,
based on industry statistics.
Rounds played fell 4.9% in 2013
and 1.5% in 2014, through November. The drop has been
blamed on bad weather, but it
could also reflect the aging
player base.
Callaway owns valuable assets, including a nearly 20%
stake in TopGolf, a golf-themed
entertainment venue in Dallas,
Texas, started in 2000. According to Boyar Research, Callaway’s stake could be worth
about $2 a share.
Not including TopGolf, Boyar
puts Callaway’s intrinsic value
at $12 a share.
David Englander is a staff writer
for Barron’s. For more stories, see
barrons.com.
TAX TIP
IRS Giveaway: Free Filing Software
BY TOM HERMAN
Grappling with confusing tax
forms and instructions may
seem like the textbook definition of cruel and unusual punishment.
But there are a few ways for
most taxpayers to make the
task less burdensome. For example, around 70% of all taxpayers are eligible for free federal income-tax-preparation and
electronic-filing
software
through a program known as
“Free File.”
For the do-it-yourself crowd,
Free File is definitely worth
considering—as long as you are
comfortable with using software.
Over the years, readers who
have used the free software
have told me they generally
have found it very helpful, especially for relatively simple tax
situations.
Free File (IRS.gov/FreeFile)
is a partnership between the Internal Revenue Service and a
group of 14 tax-software companies, known as the Free File
Alliance. The companies are offering products at no charge.
But they aren’t available to everyone.
“If you earned $60,000 or
less last year, you are eligible to
choose from among 14 software
products,” the IRS says.
“If you earned more, you are
still eligible for Free File Fillable Forms, the electronic version of IRS paper forms,” the
IRS says. “Anyone, regardless of
income, can use it,” a spokesman adds. This option is “best
suited to those who are com-
fortable with, and familiar with,
the forms.”
The IRS began accepting income-tax returns this year on
Jan. 20.
Each of the 14 companies offering software products has
“its own special offers, generally based on age, income or
state residency,” the IRS says.
Some companies also offer free
state tax-return preparation.
The Free File program will
be available through October
2015. Officials say that more
than 43 million people have
used Free File since 2003.
Send your questions to us at
askdowjones.sunday03@wsj.com
and include your name, address
and telephone number. Questions
may be edited; we regret that we
cannot answer every letter.
BY TOM LAURICELLA
You
wouldn’t play
golf without a
full set of
clubs. Don’t go
into retirement without a fully equipped
retirement tool kit.
Among those tools: a realistic budget paired with an efficient plan for withdrawing
money from savings; an experienced accountant, attorney
and source for financial advice; investments that match
your cash needs and stomach
for losses; up-to-date estateplanning documents; and a
nonfinancial plan for staying
engaged during retirement.
“It’s important to have a
thoughtful plan in mind before you pull the trigger” on
retirement, says Clarissa Hobson, a financial planner at
Carnick & Kubik in Colorado
Springs, Colo. “Having a
plan…makes for a much more
easy transition.”
paycheck from an employer to
make up the difference.
“Often times, people’s risk
tolerance does shift as they
are moving into retirement,”
says Ms. Hobson.
Budgeting
Team of Experts
The foundation of a retirement plan is a budget. On one
side of the ledger: How much
will come from Social Security, pensions and savings? On
the other: How much will be
spent? That budget should be
revisited frequently.
Ms. Hobson drills down into
clients’ spending habits before
retirement and has them take
time to see how a planned budget matches actual spending.
She says retirees should include infrequent expenses—
such as annual insurance premiums—that may not show up
on the latest bank statement.
Ron Myers, an adviser in
Fort Lauderdale, Fla., says retirees need to account for bigger expenses that pop up
rarely or without warning.
That could include a new car,
roof repairs or big dental bills.
Retirees “need to make sure
their reserve account [can handle] not just one surprise, but
another that comes up right after the first one,” he says.
Asset Allocation
Even before retirement, investors should shift to an investment portfolio that
matches both income needs
and the means to weather inevitable market declines. In
all likelihood, there will be no
Harry Campbell
Many people go through
their working years with only
cursory visits to an accountant
or attorney, and often no financial advice. But don’t be afraid
to ask for help in retirement.
Consider taxes. Many people with an accountant make
just one visit a year; others
skip the visit entirely, thanks
to do-it-yourself tax-preparation software. An experienced
tax accountant can produce
real savings, says Mr. Myers.
“For many people, [retirement] is the first time in their
lives where decisions they
make have a profound impact
on their taxes,” he says.
For instance, poorly timed
withdrawals from tax-deferred
accounts or pension payouts
could mean paying more taxes
on Social Security benefits.
Even for basic estate-planning
documents, stick to attorneys
experienced drawing up wills,
power of attorney and other
planning documents.
And it may be time to consider getting financial advice.
Neil Hokanson, co-founder of financial planners Hokanson Associates in Solana Beach, Calif.,
says he often has clients who
are comfortable doing their
own finances. “Then after a
while they don’t want to do it
anymore,” he says. “It’s a job.”
Estate Planning
Updating planning document are a must. That includes a will, power of attorney and a health-care proxy.
Beneficiaries on retirement
accounts and insurance should
be kept current.
“There are a lot of people
who have never done planning,
or did their plan when their
kids were babies,” says Ms.
Hobson. “Those plans may no
longer be applicable, or the
laws might even have changed.”
Mr. Hokanson urges
spouses and family members
to discuss “contingency plans”
for finances and health care,
should there be a serious illness or accident.
A Nonfinancial Plan
“People are starting to understand that if they don’t
have a clear vision of what
they like to do that could keep
them busy beyond the first
couple of months of retirement…they run the risk of becoming couch potatoes and
depressed,” says Eve Kaplan, a
financial planner in Berkeley
Heights, N.J.
Mr. Hokanson sees many
retirees helped by a “spiritual
team.”
“It is a group of friends one
meets with regularly, like a
weekly breakfast get-together,
to discuss what’s really important to them,” he says. “That’s
especially important for guys
who tend to live emotionally
isolated lives.”
Email: encore@wsj.com