Hedge Fund Launches Are Surging

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In the first quarter of 2021, 189 new hedge funds were launched, the highest number since the end of 2017, according to data from Hedge Fund Research.

In the fourth quarter of 2017, 190 hedge funds were started. Since then, the number of launches has been consistently lower, hitting its lowest in the first quarter of 2020 with a total of 84 launches and 304 liquidations.

“The only ones that did get launched [that quarter] were before March,” Kenneth Heinz, president of HFR, told Institutional Investor.

Heinz attributed the newfound surge in launches to three factors: performance, inflation, and risk aversion. According to a statement, the top decile of hedge funds tracked by HFR gained 126.8 percent in the 12-month period ending in the first quarter of 2021. In this quarter alone, the top decile gained 29.7 percent.

Institutional investors are also looking to hedge against inflation, Heinz said. “As the world emerges from the lockdown, inflation is present, and it will continue to build,” he said. “The different strategies provide great protection from inflation.”

These strategies include equity hedge funds and event-driven funds. As of the first quarter of 2021, the greatest portion of industry assets — 30.42 percent — were invested in equity hedge funds. Event-driven funds came in second with 27.53 percent of total industry assets.

Heinz said these particular strategies are appealing to investors because they provide exposure to some hot “meme” stocks. Plus, as the world emerges from a global quarantine, he said there is a large appetite for strategic activity in mergers and acquisitions — a strong point for event-driven funds.

Since the first quarter of 2020 and the onset of the Covid-19 pandemic, Heinz said investors have left their risk complacency in 2019. Heinz said 2019 was a “super beta year,” prompting inventors to worry less about risk and more about returns.

“I liken 2019 to the easiest year in the world to make money because everything went up,” Heinz said. “But then March reminded investors they had become complacent about risk.”

As they move into the new year and recover from the pandemic, investors have taken more defensive positioning against risks that were overlooked in 2019. As for the future of the hedge fund industry, Heinz said he believes the market has entered a period of expansion.

“Even though the markets have recovered and they’ve gone back to record highs, I think institutions that are allocating are still very much more cognizant of risk than they were prior to the first quarter of 2020,” he said. “I think that’s the reason that you’re seeing more capital inflows and more funds launching.”

https://i0.wp.com/onlinemarketingscoops.com/wp-content/uploads/2021/07/Hamlin.jpg?resize=79%2C79&ssl=1

By: Jessica Hamlin

Source: Hedge Fund Launches Are Surging | Institutional Investor

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Critics:

A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives. Financial regulators generally restrict hedge fund marketing except to institutional investors, high net worth individuals and others who are considered sufficiently sophisticated.

Hedge funds are regarded as alternative investments. Their ability to make more extensive use of leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, such as mutual funds and ETFs. They are also considered distinct from private-equity funds and other similar closed-end funds.

As hedge funds generally invest in relatively liquid assets and are generally open-ended, meaning that they allow investors to invest and withdraw capital periodically based on the fund’s net asset value, whereas private-equity funds generally invest in illiquid assets and only return capital after a number of years. However, other than a fund’s regulatory status there are no formal or fixed definitions of fund types, and so there are different views of what can constitute a “hedge fund”.

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Do You Get Your Money’s Worth From Buying An Annuity?

Coin Stacks And Chart Graphs On A Chessboard

Once upon a time, in the (somewhat mythical) past of traditional defined benefit pensions, your employer protected you from the risk of outliving your money in retirement, by acting, more or less, as an insurance company providing an annuity. With that benefit receding into the past, many experts have been hoping that Americans with 401(k) plans would avail themselves of annuities on their own, to give themselves the same sort of protection, and, indeed, the SECURE Act of 2019 made it easier for those plans to offer their participants an annuity choice, and, when surveyed, 73% of those participants said they would “consider” an annuity at retirement.

At the same time, though, Americans distrust annuities — in part because traditional deferred annuities had high fees and expenses and only made sense in an era predating IRAs and 401(k)s, when they were attractive solely due to the limited tax-advantaged options for retirement savings. But that’s not the only reason — annuities, quite frankly, aren’t cheap.

How do you quantify the value of an annuity? In one respect, it’s subjective and personal: do you judge yourself to be in good health, or does family history and your list of medications say that you’ll be one of those with the early deaths that longer-lived annuity-purchasers are counting on? Do you want to be sure you can maintain your standard of living throughout your retirement, or do you figure that you won’t really care one way or another if you have to cut down expenses once you’re among the “old-old”?

But measuring the value of annuities, generally speaking, does tell us whether consumers are getting a fair deal from their purchases, and here, a recent working paper by two economists, James Poterba and Adam Solomon, “Discount Rates, Mortality Projections, and Money’s Worth Calculations for US Individual Annuities,” lends some insight.

Here’s some good news: using the costs of actual annuities available for consumers to purchase in June 2020, and comparing them to bond rates which were similar to the investment portfolios those insurance companies hold, the authors calculated “money’s worth ratios” that show that, for annuities purchased immediately at retirement, the value of the annuities was between 92% – 94% (give-or-take, depending on type) of its cost. That means that the value of the insurance protection is a comparatively modest 6 – 8% of the total investment.

But there’s a catch — or, rather, two of them.

In the first place, the authors calculate their ratios based on a standard mortality table for annuity purchasers — which makes sense if the goal is to judge the “fairness” of an annuity for the healthy retirees most likely to purchase one. But this doesn’t tell us whether an annuity is a smart purchase for someone who thinks of themselves as being in comparatively poorer health, or with a spottier family health history, and folks in these categories would benefit considerably from analysis that’s targeted at them, that evaluates, realistically, whether annuities are the right call and whether their prediction of their life expectancy is likely to be right or wrong.

In the second place, the 92% – 94% money’s worth calculation is based on the typical investment portfolio of insurance companies, approximated by the returns of BBB-rated bonds. This measures whether the annuity is “fair” or not, in that “moral” sense of whether the perception that the company is “cheating” is customers is real (it’s not).

But these interest rates are very low. The authors, in addition to their calculations of “money’s worth,” back into the implied discount rate from the annuity costs themselves. For men aged 65, that interest rate is 2.16%; for women aged 65, 2.18%.

Now, imagine that you compare this annuity to an alternative plan of investing your money in the stock market, earning 7% annual returns, and believing you can predict your death date (or not really caring if you fall short or end up with leftover money for heirs).

The cost of the protection offered by the annuity, the guarantee that you will never run out of money, and that you will not suffer from a market crash, is very expensive indeed — when you compare apples to oranges in this manner, the money’s worth ratio is, according to my very rough estimates, more like 60%, meaning that about 40% of your cash is spent to purchase the “insurance protection” of the annuity.

And, again, that’s not because insurance companies are cheating anyone; that’s solely because of the wide gap between corporate bond rates and expected returns when investing in the stock market— a gap which was particularly wide in the summer of 2020 when this study was competed, but remains nearly as wide now.

As it stands, Moody’s Baa rates are in the 3% range; in the 2000s, they were in the 6% range, and in the 1990s, from 7% – 9%. Although this drop in bond rates is good news for American homebuyers because this marches in tandem with mortgage rates, it makes it far harder for retirees to manage their finances in ways that protect them from the risks that they face in their retirement.

Perhaps interest rates in general, and bond rates specifically, will increase as we leave our current economic challenges, but there’s no certainty, and as long as this gap between bond rates and expected stock market returns remains so substantial, retirees will be challenged to find any sort of safe investment that makes sense for them. Which means that what seems like a great benefit for Americans looking to borrow money — for mortgages, car loans, credit cards — can pit the elderly against the young in a generational “us vs. them” contest.

As always, you’re invited to comment at JaneTheActuary.com!

Follow me on Twitter. Check out my website.

Yes, I’m a nerd, and an actuary to boot. Armed with an M.A. in medieval history and the F.S.A. actuarial credential, with 20 years of experience at a major benefits consulting firm, and having blogged as “Jane the Actuary” since 2013, I enjoy reading and writing about retirement issues, including retirement income adequacy, reform proposals and international comparisons.

Source: Do You Get Your Money’s Worth From Buying An Annuity?

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Critics:

An annuity is a series of payments made at equal intervals.[1] Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time. Annuities may be calculated by mathematical functions known as “annuity functions”.

An annuity which provides for payments for the remainder of a person’s lifetime is a life annuity.

Variability of payments

  • Fixed annuities – These are annuities with fixed payments. If provided by an insurance company, the company guarantees a fixed return on the initial investment. Fixed annuities are not regulated by the Securities and Exchange Commission.
  • Variable annuities – Registered products that are regulated by the SEC in the United States of America. They allow direct investment into various funds that are specially created for Variable annuities. Typically, the insurance company guarantees a certain death benefit or lifetime withdrawal benefits.
  • Equity-indexed annuities – Annuities with payments linked to an index. Typically, the minimum payment will be 0% and the maximum will be predetermined. The performance of an index determines whether the minimum, the maximum or something in between is credited to the customer.

See also

References

  • Kellison, Stephen G. (1970). The Theory of Interest. Homewood, Illinois: Richard D. Irwin, Inc. p. 45
  • Lasher, William (2008). Practical financial management. Mason, Ohio: Thomson South-Western. p. 230. ISBN 0-324-42262-8..
  1. Jordan, Bradford D.; Ross, Stephen David; Westerfield, Randolph (2000). Fundamentals of corporate finance. Boston: Irwin/McGraw-Hill. p. 175. ISBN 0-07-231289-0.
  • Samuel A. Broverman (2010). Mathematics of Investment and Credit, 5th Edition. ACTEX Academic Series. ACTEX Publications. ISBN 978-1-56698-767-7.
  • Stephen Kellison (2008). Theory of Interest, 3rd Edition. McGraw-Hill/Irwin. ISBN 978-0-07-338244-9.

How to Buy Happiness (Responsibly)

The great reopening offers ample opportunity to lift your spirits if you have some money to spare. Here’s how to do it right. Bring on the nationwide spending binge. Half of all people over 18 in the United States are now fully vaccinated. Tens of millions of them are emerging, blinking in the springtime sunshine, and heading straight for restaurants, movie theaters or a flight to somewhere — or anywhere, really.

It is true that millions of people are still trying to get their hotel jobs or theater gigs back. But collectively, Americans are holding on to a larger share of their income than they have in decades.

That leftover money is a kind of kindling. We may look back on this moment as a once-in-a-lifetime period, when many millions of Americans felt that money was burning actual holes in their pockets.

It is an unfamiliar sensation for many of us. “There is a puritanical streak that runs through all aspects of money in America,” said Ramit Sethi, an author who focuses more attention than most on spending well in addition to saving intelligently. “And most of the conversations start with no.”

But we should consider the strong possibility that saying yes right now could bring a true improvement in happiness. So this column — and another one next week — will be about maximizing it through strategic spending.

The conversation begins with “Yes, and … — with perhaps with a side order of “Yes, but …” To help us all get there, I called on some of my most thoughtful contacts among people who talk, think or write about money. And I made sure to ask them this: What are you doing yourself?

Brian Thompson, a financial planner in Chicago, was prepared for this moment. He generally has two questions at the ready: What do you want to spend your money on? And why are you really spending it?

There are no wrong answers, Mr. Thompson said. “I always come from the approach that there is no judgment, and I try to come with empathy to help people clarify what the money means for them,” he said.

Paradoxically, the first thing to think about here is saving. Paulette Perhach said it better than I could here in her classic 2016 article exhorting everyone to build a freedom fund. (“Freedom” is my word — she uses an F-bomb, if you’re trying to find it via internet search.)

Savings aren’t just for when your car breaks down or you get sick. Having a freedom fund means you are not beholden to someone else — whether that’s a significant other who is treating you like garbage or a boss who is harassing you or otherwise making you miserable.

“This is about power, and power comes in a lot of different forms,” Ms. Perhach, an essayist and a writing coach, told me this week. “It comes from options. From looking at life and making sure one person does not have so much say over the outcome of your finances that you would have to tolerate behavior that goes against your own self-respect.”

Every few years, I reopen my well-worn copy of “Happy Money: The Science of Happier Spending,” a book from 2013 by Elizabeth Dunn and Michael Norton, for a review session. This time, I called Professor Dunn, a member of the psychology department at the University of British Columbia, to help me along.

A first principle of research in this area has generally been that buying an experience brings more satisfaction — and less buyer’s remorse — than buying stuff. In the years since the book was published, Professor Dunn said, this conclusion has largely held up for people with more money, though it can be less true for people farther down the socioeconomic ladder.

So what types of experiences should we be making a priority?

After a year marked by loss, I adopted a narrow approach focused on things that I might not have a chance to do again. I will never attend another John Prine concert or again eat food touched by the hands of Floyd Cardoz, both of whom were among the many we lost to the pandemic.

But there are things I can do instead that aren’t likely to recur, like attending my friend’s swearing-in ceremony as police chief in another state. And I’m prioritizing a trip with my daughters to the Great Barrier Reef (using approximately 9,000 years of frequent-flier mile savings) before it is no more.

Professor Dunn endorsed my plans, and the need to get out into the world again. “The only experiences I’ve been having are Netflix and DoorDash,” she said.

Professor Dunn lost her mother, Winifred Warren, to lung cancer in September and has a plan to celebrate her someplace other than a Zoom chat. Soon, she’ll get over the border to California and dine with her aunt and her mother’s best friend at the famed French Laundry — where Ms. Warren had been hoping to go herself, once she got better.

But just because so much fun seems available again all at once, it doesn’t mean you should pursue it all simultaneously. People who have reasonably high incomes — but the proclivity to go the immediate gratification route — can rack up quite a bit of debt,” Professor Dunn said.

Indeed, credit card issuers are licking their lips in anticipation of whatever orgy of spending ensues this year. Ms. Perhach found herself impulsively buying concert tickets recently and was inspired to pen a warning about the behavioral science of overspending for Vox.

The gratification doesn’t necessarily last long — and can even be wiped out by the dread of any new debt, she said. “I’ve done trips with an undercurrent of ‘I’m about to be in trouble,’” she told me this week. “And that’s not a great recipe for fun.”

If you are among the many lucky millions who are better off financially than you were at the beginning of 2020, consider how good it might feel to give something away.

Minnie Lau has spent much of the past year helping her accounting clients in the San Francisco Bay Area spend and save the windfalls from initial public offerings and other stock winnings in as tax savvy a manner as possible. Both they and she have done quite well. They did nothing wrong and have nothing to apologize for.

But amid so much death, fear and suffering, coming out ahead still leads to conflicted feelings. “My ill-gotten gains are going to the food bank,” Ms. Lau said of the money she has made investing this year. “People should not have to line up for food. Didn’t California just announce that it had a surplus? What kind of crazy world is this?”

Everyone else I talked to this week felt a similar urge. Professor Dunn recalled being overwhelmed with gratitude after receiving her coronavirus jab. Now, she’s a monthly donor to UNICEF’s vaccine equity initiative. Ms. Perhach is supporting VONA, which helps writers of color, while Mr. Sethi busted into his emergency fund to donate to Feeding America and match his readers’ donations.

Mr. Thompson, the financial planner, has given money to help people who are both Black and transgender — a segment of the population that he believes needs more help than most. And he’s redoubling his efforts at work to reduce the racial wealth gap.

“If I can help more people build more wealth to pass down, it is a way of serving my purpose and helping people in the process,” he said. “And I think that takes more than just giving. It means systemic change.”

Ron Lieber

 

 

Source: https://www.nytimes.com/

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Critics:

Money management is the process of expense tracking, investing, budgeting, banking and evaluating taxes of one’s money which is also called investment management. Money management is a strategic technique to make money yield the highest interest-output value for any amount spent. Spending money to satisfy cravings (regardless of whether they can justifiably be included in a budget) is a natural human phenomenon.

The idea of money management techniques has been developed to reduce the amount that individuals, firms, and institutions spend on items that add no significant value to their living standards, long-term portfolios, and assets. Warren Buffett, in one of his documentaries, admonished prospective investors to embrace his highly esteemed “frugality” ideology. This involves making every financial transaction worth the expense:

1. avoid any expense that appeals to vanity or snobbery
2. always go for the most cost-effective alternative (establishing small quality-variance benchmarks, if any)
3. favor expenditures on interest-bearing items over all others
4. establish the expected benefits of every desired expenditure using the canon of plus/minus/nil to the standard of living value system.

References

Tanzania Considers Crypto and Boosts Bitcoin as Nations Line Up Behind El Salvador To Embrace Decentralized Finance

Bitcoin

Tanzania became the latest country to signal its support for digital assets this weekend as its president instructed financial authorities to prepare for widespread use of cryptocurrencies, elevating bitcoin prices further after El Salvador became the first country to make bitcoin legal tender last week and Elon Musk outlined plans for Tesla to resume accepting bitcoin as a form of payment.

Key Facts

President Samia Suluhu Hassan called on the Tanzanian Central Bank Sunday to begin “working on” facilitating widespread use of cryptocurrencies in the East African nation.  While many in Tanzania have not yet embraced decentralized finance, Hassan said the Central Bank should “be ready for the changes and not be caught unprepared.

”Hassan is one of the most senior politicians to signal support for digital assets since El Salvador voted to adopt bitcoin as legal tender last week and helped give the flagging market a boost. The announcement helped bitcoin gain nearly 10% in 24 hours, nearly reaching $40,000 a token Monday morning.

The token was also buoyed on by news that Tesla would resume its use of bitcoin when there is proof the asset is obtained using around 50% clean energy.

What To Watch For

There is growing popular support for bitcoin adoption in Nigeria that also gained momentum over the weekend. Russell Okung, an NFL player of Nigerian descent, penned an open letter to the Nigerian president imploring the country to adopt a Bitcoin standard so as to avoid “falling behind.” Twitter and Square CEO Jack Dorsey, one of the most high profile crypto enthusiasts, tweeted his support of the idea a number of times over the weekend.

Key Background

While reaching its highest point in several weeks, bitcoin, along with the wider crypto market, is still recovering from a tailspin that rapidly wiped over $700 billion from the market’s value. This slump was primarily induced by Tesla announcing it would no longer accept bitcoin due to environmental concerns and China cracking down on the assets.

Support from the likes of El Salvador, alongside other countries and banks that may begin to adopt bitcoin, or other cryptocurrency tokens, the market has slowly started to recover, though remains volatile. Beyond Tanzania, lawmakers in a number of Latin American countries have expressed at least a casual interest in following El Salvador’s footsteps, including Brazil and Panama.

Further Reading

El Salvador Makes History As World’s First Country To Make Bitcoin Legal Tender (Forbes)

Tanzanian president urges central bank to prepare for crypto (Coin Telegraph)

I am a London-based reporter for Forbes covering breaking news. Previously, I have worked as a reporter for a specialist legal publication covering big data and as a freelance journalist and policy analyst covering science, tech and health. I have a master’s degree in Biological Natural Sciences and a master’s degree in the History and Philosophy of Science from the University of Cambridge. Follow me on Twitter @theroberthart or email me at rhart@forbes.com

Source: Tanzania Considers Crypto—And Boosts Bitcoin—As Nations Line Up Behind El Salvador To Embrace Decentralized Finance

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Critics:

The European Union has passed no specific legislation relative to the status of bitcoin as a currency, but has stated that VAT/GST is not applicable to the conversion between traditional (fiat) currency and bitcoin. VAT/GST and other taxes (such as income tax) still apply to transactions made using bitcoins for goods and services. 

In October 2015, the Court of Justice of the European Union ruled that “The exchange of traditional currencies for units of the ‘bitcoin’ virtual currency is exempt from VAT” and that “Member States must exempt, inter alia, transactions relating to ‘currency, bank notes and coins used as legal tender‘”, making bitcoin a currency as opposed to being a commodity. According to judges, the tax should not be charged because bitcoins should be treated as a means of payment.

According to the European Central Bank, traditional financial sector regulation is not applicable to bitcoin because it does not involve traditional financial actors. Others in the EU have stated, however, that existing rules can be extended to include bitcoin and bitcoin companies.

The European Central Bank classifies bitcoin as a convertible decentralized virtual currency. In July 2014 the European Banking Authority advised European banks not to deal in virtual currencies such as bitcoin until a regulatory regime was in place.

In 2016 the European Parliament’s proposal to set up a task force to monitor virtual currencies to combat money laundering and terrorism, passed by 542 votes to 51, with 11 abstentions, has been sent to the European Commission for consideration.

See also

References

IRS Releases Child Tax Credit Payment Dates Here’s When Families Can Expect Relief

Treasury check on top of various currency bills - corona virus relief

The Internal Revenue Service said Monday it has begun sending letters to more than 36 million families likely eligible to receive payments starting in July under the newly expanded Child Tax Credit—one of the major antipoverty initiatives in President Biden’s stimulus plan—and announced the dates those payments are expected to hit bank accounts.

Key Facts

Biden’s $1.9 trillion American Rescue Plan significantly expanded the Child Tax Credit for the 2021 tax year: It will now provide eligible parents with a $3,000 credit for every child aged 6 to 17 and $3,600 for every child under age 6 (up from $2,000 per dependent child up to age 16).

Individuals earning up to $75,000 a year, heads of household up to $112,500 a year, and joint filers up to $150,000 a year are eligible to receive the full amount of the credit.

The amount of the payments will phase out by $50 for every $1,000 in adjusted gross income above those thresholds. The IRS will use information from 2019 or 2020 tax returns or the agency’s online Non-Filers tool to determine eligibility.

Some of that money will come in the form of advance payments, via either direct deposit or paper check, of up to $300 per month per qualifying child on July 15, August 13, September 15, October 15, November 15 and December 15, the IRS said Monday.

Families can claim the remainder of the credit on the 2021 tax returns they file next spring.

Big Number

$4,380. That’s the average benefit over 90% of families with children will receive under the expanded credit, according to the Tax Policy Center.

Tangent

The American Rescue Plan also made the Child Tax Credit fully refundable for 2021. It was previously refundable only up to $1,400 per child, and families needed to earn at least $2,500 to be eligible for any of that money. That means many low-income families or families with no income at all that would have been ineligible for some or all the old credit (because they didn’t earn enough to owe taxes to qualify) can receive the full benefit in 2021.

What To Watch For

The IRS said it will send a second letter to eligible families with information about the estimated monthly payments they can expect to receive. The IRS is also expected to open an online portal where families can check their eligibility, update information about income and qualifying children, check the status of their payments and opt out of the program.

Key Background

The White House has proposed extending the expanded Child Tax Credit for another five years under the American Families Plan (which has yet to be taken up by Congress), but many progressives want to make the expanded credit permanent. “No recovery will be complete unless our tax code provides a sustained pathway to economic prosperity for working adults and families,” 41 Democratic senators wrote in a letter to President Biden in March. “Your forthcoming Recovery Plan is the opportunity we have to make the expansions of these credits permanent.“

Further Reading

Expanded Monthly Child Tax Benefit Will Begin Hitting Bank Accounts July 15 (Forbes)

Here’s Everything You Need To Know About The New Expanded Child Tax Credit (Forbes)

41 Democratic Senators Ask Biden To Support Permanent Child Tax Credit And Earned Income Tax Credit (Forbes)

How Much Money You Will Get From Stimulus Checks, Unemployment Benefits And Everything Else Inside Biden’s $1.9 Trillion Relief Bill (Forbes)

I’m a breaking news reporter for Forbes focusing on economic policy and capital markets. I completed my master’s degree in business and economic reporting at New York University. Before becoming a journalist, I worked as a paralegal specializing in corporate compliance.

Source: IRS Releases Child Tax Credit Payment Dates—Here’s When Families Can Expect Relief

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Critics:

There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

  • The credit amounts will increase for many taxpayers.
  • The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
  • The credit will include children who turn age 17 in 2021.
  • Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.

Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.

Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.

The IRS also urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the CTC. The IRS will be providing additional materials and information that can be easily shared by social media, email and other methods.

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How Much Money Is ‘Enough’? Try This Experiment to Get an Exact Number to Aim For

a wad of money secured with a blue paper clip on a pink background

Have you ever read those articles where some extremely well-off family details their budget and then bemoans that they’re barely getting by?

It’s ridiculous that anyone could complain about raking in $350,000 a year, and it’s clear many of these folks are wildly out of touch with how privileged they are. But while these families may be extreme (and annoying), they aren’t alone. It’s not just the wealthy who fall into the trap of earning more only to spend more and feel just as dissatisfied.

How do you get off this treadmill?

The answer is not to compare yourself with others (Jeff Bezos will always be there to make you feel bad), or to blindly try to keep making more (there will always be some shiny, new thing to covet). The answer is to take a hard look at your own financial realities and aspirations and come up with a goal number. How much money is enough for you?


The Science of Money and Happiness

That number will be different for everyone, depending on your circumstances and values, but science can give us some sense of how much money might be “enough.” Research shows that up to a certain threshold (studies consistently put it at about $75,000 dollars a year, give or take a bit depending on cost of living) money has a big impact on both day-to-day happiness and life satisfaction.

If you’re below this level, making more will likely make you significantly happier. But beyond that point, each additional dollar adds a little less to your life. There is a level of wealth way before Bill Gates status that trading more effort and time for more money ceases to make sense (even Bill Gates says so).


Name Your Number

One way to calculate that point is to figure out how much money you’d need to make decisions based entirely on enjoyment and impact, without pressure to earn. This is the goal of the catchily named FIRE movement (for financial independence, retire early). Its boosters generally say that 25X your expected annual expenses is enough. So if $50,000 a year is enough for you to live comfortably, you need to save $1.25 million.

There are other more elaborate calculators that can give you a sense of what financial independence means for you. But perhaps the best way to get a feeling for your goal number isn’t math but a simple thought experiment from writer Brad Stollery:

Suppose you’re one of five people who have been selected by a mysterious philanthropist to participate in a contest. The five of you all have comparable debt-levels and costs-of-living, as well as similar, middle-class financial situations. You’re all roughly the same age, equally healthy, have the same number of children, and you all live moderately low-risk lifestyles. Privately, and one by one, a representative of the donor approaches each of you with a blank check and a pen, and poses the following question:

How much money would you have to be paid, right here and now, to retire today and never receive another dollar of income (from any source) for the rest of your life?

The catch this time is that whoever among the five players writes the lowest amount on the check will be paid that sum. The other four players will get nothing.

This thought experiment forces you to cut away the natural impulse to aim ever upward (if you do that you’ll bid too high and get nothing). That result is however much you ask for is your number, the amount you’d need to live comfortably and pursue your goals if status and lifestyle inflation weren’t a factor.

Your answer might be a little bit higher or lower than mine or your neighbor’s. That’s fine. It’s not important everyone agree on a number. The important thing is that we each reflect enough to have one.

Because the alternative is being one of those people confessing online how you burn through a healthy six-figure salary and still feel stressed and dissatisfied. Your expenses and desires can be infinite. If you don’t want to chase them miserably forever, you need to put a cap on your financial ambitions yourself.

By: Jessica Stillman

This post originally appeared on Inc. and was published February 5, 2020. This article is republished here with permission.

Did you enjoy this story? Get Inc.’s daily newsletter

Source: Pocket

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References

How Founder Coaching Can Lift Humanity up in the VC World

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The global entrepreneurship landscape is buried under the avalanche of news stories about founders securing multi-million-dollar funding to live out their dream of taking the world by storm.

But the heavy snowfall of cash falling from the venture capital sky may be blinding us to the struggles of startup owners along the way, especially those who are undertaking this expedition for the first time.

This is a trap that even the best of investors can fall into. Elite coach Ariane de Bonvoisin has experienced first hand that many venture capitalists and business leaders treat founders as superheroes who can brave anything without having a clue about their personal journeys.

“They’re investing in the company and not investing in the founder,” says Bonvoisin, an executive coach to top CEOs, startup founders, and VCs, who aspires to help clear the vision of investors so that they can better see the importance of coaching.

In her view, it is easy to forget that people are humans. “You give people the label of entrepreneur or founder, but it’s still just a role that people are in. You peel back the role, and that’s where you find the truth,” she told 150sec.

As someone who has sat on both sides of the table—having been an investor and an entrepreneur—she knows well that separating the founder from the business leads to a “dangerous” path that could threaten the survival of the business while sapping the morale of its owner.

Bonvoisin is a swimmer, a ski instructor, a long-distance runner, and a climber who has reached the summit of Mount Kilimanjaro and accompanied a group of students to Antarctica.

What perplexes her is that a professional athlete would never get a sponsor without having a coach because “it implies that they have talent” but a tech startup can attract millions of dollars in investment without any coaching attached to it.

“When you look at the acting world, you see that even multiple Academy Award winners still have acting coaches. They are still given a coach for every role they take without any question. It’s the same in the music industry,” she said.

Normalizing coaching.

Ariane has come across investment firms that refuse to invest in a company unless they have a coach but believes there is a long road ahead for coaching to become mainstream among investors.

However, as a wise man once said, even the longest journeys begin with a single step. And who knows it better than Bonvoisin who is featured in a documentary that follows a motorcycle excursion through the highest passes of the Indian Himalayas.

In the case of founder coaching, she argues the first step is to start shattering the taboo against seeking help.

“The perception is if you need a coach, you’re worried or scared or incompetent or are dealing with something you don’t really want to tell your investors,” Bonvoisin said, adding that she has worked with founders whose investors refused to pay for their coaching.

Asked what needs to be done to reduce this stigma, she said using facts and statistics to demonstrate the true impact of a coach can go a long way toward normalizing coaching “because we’re still in an industry that values results, money, growth, and success.”

For instance, she says, a founder can tell the investor they would have raised $1 million without a coach but managed to raise $5 million with the help of a coach or that they taught they were at the pre-seed stage without a coach but raised a Series A round with a coach.

Another example, according to her, is when the entrepreneur can explain they could not hire a VP of sales but a coach helped them bring someone on board that secured new clients and elevated the company’s position in the market.

Celebrating role models.

The other thing is to ask founders to talk about their personal and work-related struggles without shame or fear of judgment, added Bonvoisin, an author who has given a TED talk and keynoted Oprah Winfrey’s O You conference in 2013.

She thinks celebrating successful people who hire coaches—including famous Silicon Valley entrepreneurs and investors or executives at companies like Google or Facebook—is another link in the chain that can cause cracks in the taboo surrounding coaching.

Bonvoisin also feels the need for increased awareness about different types of coaching that exist.

“When people think of coaching in this industry, they think of it as life coaching or business coaching. To me, coaching is a lot broader than that. For example, investors can give founders a health coach. And there are people who have parenting coaches to help them build a startup with two kids at home that need home schooling.”

Return-on-coaching mindset.

Dedicating even 1 percent of the fund to facilitate founders’ access to coaching is a “brilliant” use of money, added Bonvoisin, who has been invited to Google, Amazon, the World Bank, and Red Bull to teach about navigating change and founder and startup wellness.

“It is a very small contribution that has the ability to massively affect the quality of your investment,” she said, emphasizing that there needs to be a return-on-coaching mindset—not just a return-on-investment mindset.

In her opinion, founders should be given the freedom and trust to choose their own coach without having to report the details of how they are using the coaching money because it would be an intrusion on their privacy.

However, investors can make some coaches available or put them on retainer for when founders are having a panic attack before an important meeting or need immediate help with a decision.

She maintains that coaching is crucial because it is a role entrepreneurs do not get from their family, friends, spouse, co-founders, or investors “from which they are usually hiding things.”

“When humanity gets lifted in both the investor side and the startup side, a very different conversation is possible, which is not just about ROI, KPIs, or fundraising goals. And what I’ve seen with the founders is that when the VC shows they care about the founder, the founder will run 10 more marathons for them.”

There needs to be a return-on-coaching mindset—not just a return-on-investment mindset.

~ Ariane de Bonvoisin

Common misconceptions.

As a Tony Robbins certified trainer who assists in a leadership capacity at his events around the world, Ariane can talk for hours and hours about common misconceptions about coaches and the process of coaching.

Many are under the assumption that coaching is expensive, she said, adding that it is also a false perception that a coach is all about the psychology of people and not the real guts of the business.

“A coach can have a bit more of a 360-degree view of the situation, ask questions that no one else is asking you about your business, and add tremendous value even without having direct experience in the industry in question.”

There are a large number of coaches who have worn many hats as founders and investors and can share their knowledge about different aspects of a business, she added.

Another thing she says some people get wrong is that a coach is “very soft and is like a friend that cheers you on or you cry with when you fall apart.”

But the reality is that coaching can be “direct, brutal, and honest” while offering “a very loving, kind, warm, trusting, and safe place to land” at the same time, added Ariane, who landed on the list of Silicon Alley’s top 100 people to watch a few years ago.

Coaching is not ‘surgery.’

Another prevailing myth, according to Bonvoisin, is that a coach is a temporary resource and is for when things are going badly.

“Some think that coaching is like a surgery and is just for a specific period of time when they are dealing with difficult decisions,” she said.

But coaching is a relationship where “you build something together with someone who is your raving fan”, added Ariane who has had her own coach for 17 years and says almost 80 percent of her clients have been with her for more than a year.

Another misbelief she knows from experience is that a coach should be older than the coachee or “is someone like you”.

Elaborating further, Bonvoisin said, “Some people think only coaches who have the same gender, race, or background can understand, coach, and relate to them and that someone totally different to them probably won’t be able to enter their world.”

This is a total myth as “someone who is different often stretches your identity, offers a new perspective and worldview, helps you see blind spots, and expands your beliefs,” Bonvoisin added.

In her world, coaching is like traveling.

“The more you travel to different places, the more you learn, grow, and expand your awareness and consciousness. If you take a plane to a faraway destination where you don’t speak the language and people look different to you and eat different things, what you learn will be exponential.”

People often look for what they are familiar and comfortable with so they gravitate to individuals who are like them, she said.

“It’s easier for people to fly from New York City to Miami for a ‘change of scenery’ than to Delhi. And yet Delhi will change them far more. The same metaphor applies to going on the adventure of coaching,” commented Ariane, who has lived and worked in different countries.

Coaching can be “direct, brutal, and honest” while offering “a very loving, kind, warm, trusting, and safe place to land” at the same time.

~ Ariane de Bonvoisin

As for gender-related misconceptions, she says some are under the impression that female coaches are too soft and emotional.

“But a female coach can sometimes read a situation much better, whether it’s intuitively or emotionally. I think, depending on different times in your life, you might need one or the other.”

Over the years, Bonvoisin has met people who want “really complicated things” and “strange techniques” to improve their performance.

“As human beings, we have resistance to the simple things. And sometimes the most simple tools in your toolbox are the ones that you’re not using—like drinking enough water or sleeping properly,” she noted, bringing to mind a quote from American author Jim Rohn that says “what’s simple to do is also simple not to do.”

How to choose a coach.

On how to choose the right coach, the CEO of Ariane Media said the best way to find a good one is by word of mouth.

While acknowledging that some coaches have gotten a bad rap, she maintains “it doesn’t mean all the apples in the coaching basket are rotten.”

“Definitely interview more than one. Most coaches offer a free introductory session. Do some due diligence on the coach. Ask them who they have coached, ask for testimonials, or ask to speak to other clients they’ve coached,” she told founders.

Bonvoisin says it is important to understand why they are a coach, what they love about coaching, what training they have had, what aspects of coaching they appreciate, why they think they have been an effective coach, what their gift is, and how they choose their coaching clients.

Entrepreneurs can also ask a coach whether they have any specific industry experience “if that’s important to you”, and how much they want to be involved in “your life aspect versus your business aspect,” she added.

Bonvoisin insists people should choose “a person that you’re going to trust more than anyone in your life without feeling judged by them.” She says it is not a good sign if “you don’t look forward to speaking to your coach or getting an email from them or if the coach is trying to impose a change on you and has too many strong opinions.”

“And then the ultimate thing I always go to at the end with everything is: What does your gut tell you? It really is an intuition thing. You can hear that someone’s been trained at Harvard and coached the founder of Google and has done a TED talk, but if it doesn’t feel right to you, it’s a no.”

‘You can’t fix what you can’t see.’

Reiterating the significance of coaching, Bonvoisin said some people “keep doing what they’ve always done and keep getting poor results because they can’t fix what they can’t see.”

“For example, you may not be able to see the way you’re asking for money. It may appear like you’re getting a lot of money until you work with a coach who’s going to show you not what your verbal communication is, but what your energetic communication is.”

She says a professional coach can help people realize their inner life is determining their outer life and that the way they are viewing the world is what is impacting the world they see.

The elite coach sees entrepreneurs as “master storytellers” who are telling a story to the outside world, to the press, to their clients, to their investors, to their colleagues, and to people they want to hire.

“And yet the most important story is the one you’re telling yourself,” Bonvoisin said, adding that a coach can help founders break free from the shackles of limiting beliefs and tell themselves a more “empowering” story.

Disclosure: This article mentions a client of an Espacio portfolio company.

Source: How Founder Coaching Can Lift Humanity up in the VC World

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References

Grant, Anthony M. (2005). “What is evidence-based executive, workplace, and life coaching?”. In Cavanagh, Michael J.; Grant, Anthony M.; Kemp, Travis (eds.). Evidence-based Coaching, Vol. 1: Theory, Research and Practice from the Behavioural Sciences. Bowen Hills, Queensland: Australian Academic Press. pp. 1–12. ISBN 9781875378579. OCLC 67766842.

If You’re In Your 50s or 60s, Consider These Moves To Avoid Higher Taxes In Retirement

If you are working with an eye toward retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the “ticking tax time bomb.”

I’m referring to the tax debt building up in your individual retirement account, 401(k) or other retirement savings plans. And, as I wrote in my newest book, “The New Retirement Savings Time Bomb,” it can quickly deplete the very savings you were relying on for your retirement years. But there are a few ways you can avoid this problem.

While you may be watching your savings balances grow from your continuing contributions and the rising stock market, a good chunk of that growth will go to Uncle Sam. That’s because most, if not all, of those retirement savings are tax-deferred, not tax-free.

The funds in most IRAs are pretax funds, meaning they have not yet been taxed. But they will be, when you reach in to spend them in retirement. That’s when you quickly realize how much of your savings you get to keep and how much will go to the government.

The amount going to the Internal Revenue Service will be based on what future tax rates are. And given our national debt and deficit levels, those tax rates could skyrocket, leaving you with less than you had planned on, just when you’ll need the money most.

So, that’s the dire warning. But you can change this potential outcome with proper planning and making changes in the way you save for retirement going forward.

You can begin by taking steps to pay down that tax debt at today’s low tax rates and begin building your retirement savings in tax-free vehicles like Roth IRAs or even permanent life insurance which can include cash value that builds and can be withdrawn tax-free in retirement.

In addition, if you are still working, you can change the way you are saving in your retirement plans. If you have a 401(k) at work, you could make contributions in a Roth 401(k) if the plan offers that. A Roth 401(k) lets your retirement savings grow 100% tax-free for the rest of your life and even pass to your beneficiaries tax-free too.

Learn more: All about the Roth IRA

What the News Means for You and Your Money

Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch.

For 2021, you can contribute up to $26,000 (the standard $19,500 contribution limit plus a $6,500 catch-up contribution for people 50 and older). With some Roth 401(k) workplace plans, you might be able to put in even more.

Then, see if you can convert some of your existing 401(k) funds either to your Roth 401(k) or to a Roth IRA. Once you do this, you will owe taxes on the amount you convert. The conversion is permanent, so make sure you only convert what you can afford to pay tax on.

Also read: We have $1.6 million but most is locked in our 401(k) plans — how can we retire early without paying so much in taxes?

Don’t let the upfront tax bill deter you from moving your retirement funds from accounts that are forever taxed to accounts that are never taxed.

Similarly, you can convert your existing IRAs to Roth IRAs, lowering the tax debt on those funds as well. The point is to not be shortsighted and avoid doing this because you don’t want to pay the taxes now. That tax will have to be paid at some point, and likely at much higher future tax rates and on a larger account balance.

It’s best to get this process going now, maybe even with a plan to convert your 401(k) or IRA funds to Roth accounts over several years, converting small amounts each year to manage the tax bill.

If you have been contributing to a traditional IRA, stop making those contributions and instead start contributing to a Roth IRA. Anyone 50 or over can put in up to $7,000 a year ($6,000 plus a $1,000 catch-up contribution) and you can do so for a spouse even if that spouse is not working.

If one of you has enough earnings from a job or self-employment (and you don’t exceed the Roth IRA contribution income limits), each of you can contribute $7,000, totaling $14,000 in Roth IRA contributions each year. That will not only add up quickly, it will add up all in your favor because now you are accumulating retirement savings tax-free.

Related: Should you convert your IRA to a Roth if Biden’s infrastructure plan passes?

Once the funds are in a Roth IRA or other tax-free vehicles (like life insurance), those funds compound tax-free for you.

The secret is to pay taxes now. It’s so simple, but also so counterintuitive that most people don’t take advantage of this and end up paying heavy taxes in retirement that could have all been avoided.

Ed Slott is a Certified Public Accountant, an individual retirement account (IRA) distribution expert and author of “The New Retirement Savings Tax Bomb.” He is president and founder of Ed Slott and Company, providing advice and analysis about IRAs.

This article is reprinted by permission from NextAvenue.org, © 2021 Twin Cities Public Television, Inc. All rights reserved.

Source: If you’re in your 50s or 60s, consider these moves to avoid higher taxes in retirement – MarketWatch

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How To Think Though Hard Financial Choices And Make Better Money Decisions

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When you first learn to manage your money, you will likely feel like you are drowning in a sea of strict rules to follow: Pay off your debt, create a budget, live within your means, save more, start investing… the list goes on.

The nice thing about being in this stage, however, is that it’s pretty easy to find objectively correct answers to the questions you likely have at this point.

There’s one specific answer if you ask “what is a Roth IRA and what are the income limits if I want to contribute.” There’s a systematic way to figure out the answers to questions like, “how can I save up X amount of dollars in Y amount of time?”

But eventually, you will find an inflection point. It lies just beyond basic financial stability; it’s everything that comes after you develop sufficient financial resources.

At this point, you’ll face a new challenge: feeling confident about your decisions when you have multiple choices you could make with your money, and none of them are objectively better than another.

The Challenges Of Managing Your Money (Once You Have More To Manage)

Before you reach a certain level of income, you don’t really have a lot of agency over how you use your money; it has to go to bills, expenses, basic needs and savings. You don’t have a lot of options.

But at some point, your personal finances can no longer be managed on a spreadsheet alone. You’ll begin to have more freedom and flexibility, and therefore more choice.

When there are multiple avenues you can afford to take, determining which of your multiple choices starts getting hard to do.

One way to make a hard decision is to evaluate the objective facts around the options. This is where numbers do matter and can sometimes point us to very clear answers (like if you’re wondering if you should pay off debt faster or invest more; the answer could be easy to determine just by looking at the interest rate of your debt versus your expected investment return).

Financial choices can start feeling hard — or even impossible — once there is no objective measure of which option is better or worse. If the numbers tell you that either option can work for you, you can’t rely solely on that objective measurement to determine the best course of action.

It’s at this point where the conversation has to shift to subjective values.

The Role Of Your Values, Priorities, And Preferences In Financial Planning

In her TED Talk, Philosopher Ruth Chang says this is what truly makes a hard decision: when we have two options, we seek ways to compare them and make a judgement about which is better.

Comparing options is easy to do when you can quantify the options with real numbers, because you have clear outcomes: one option will be greater than, lesser than, or equal to the other.

But not all choices — even when they are financial choices or decisions about what to do with your money — can be quantified.

As Chang says, “the world of value is different from the world of science. The stuff of the one world can be quantified by real numbers. The stuff of the other world can’t.”

It might seem strange to say there are aspects of your finances that can’t be quantified by real numbers — but that’s exactly what happens when you get to a point where your income sufficiently covers your needs, many of your wants, and you still have money left over each month.

You then get to choose what to do with the money you have available.

Chang again explains that this is exactly what makes a decision hard: you have a number of alternatives that are not greater than, lesser than, or equal to each other.

There’s no set answer for the things you “should” do, or “ought” to do. That’s open-ended. The only real answer is what you decide is important to you, and of the highest value.

How You Can Improve The Quality Of Your Financial Decisions

In her TED Talk, Chang provides some advice for making better decisions when we face two options that, objectively, are pretty equal to each other and therefore there is no clear-cut “best” choice:

“When we face hard choices, we shouldn’t beat our head against a wall trying to figure out which alternative is better. There is no best alternative. Instead of looking for reasons out there, we should be looking for reasons in here: Who am I to be?”

Put another way, you can find the right answer to a hard choice if you consider which option best aligns with the person you want to be, or the values you want to live by.

That, at least, is the very philosophical answer to dealing with hard choices, which might not feel practice enough (especially when this is your money we’re talking about).

Using our values and ideal life vision to make financial decisions does not mean we should just completely throw all the numbers out the window and stop caring about financial facts.

We still need to consider your balance sheet, investment strategy, net worth, and a million other technical aspects that go into making a sound financial plan.

We need to look at the convergence of what we can quantify, like the numbers, and what we can’t, like your values and vision for your life.

This is how you can start making much higher-quality financial decisions: when you build a strategy that accounts for your financial reality and reasonable future assumptions and then factor your values, goals, and priorities into that framework.

That allows you to stay grounded in what the numbers are telling you… but it also points to the secret to making final decisions that bring you the most happiness and fulfillment.

Once you understand the objective landscape of your financial life and identify the choices you have available to you, the “best” course of action for you is the one that most closely reflects the person you want to be.

Eric Roberge is a CFP® and the founder of Beyond Your Hammock, a fee-only financial planning firm based in Boston. His goal is to help motivated professionals in their

Source: How To Think Though Hard Financial Choices And Make Better Money Decisions

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References

“The Future of Jobs Report 2018” (PDF).

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