Oak Street Advisors

US Debt Downgrade – Let’s Get Real!

2011-07-27T10:52:00.000-04:00

The topic de jour on the cable ‘news’ outlets is a possible downgrade of United State Treasury debt. Granted the antics in congress are sophomoric at best and certainly cause for concern, but to worry much about a possible downgrade of US debt is even more absurd.

First, the ratings agencies have a woeful track record of actually making any calls with respect to bond ratings of publicly traded companies. Where was S&P and Moody’s when Ernon collapsed? Why did so much toxic mortgage debt that led to the credit crisis in 2007 and 2008 receive a AAA stamp of approval from these same agencies that now threaten to downgrade US Treasuries? Why were the ratings agencies asleep at the wheel when AIG went so deep in the red that the US Government had to step in and bail them out? It is hard to see how these agencies have any credibility left. Perhaps this is just their way of inserting themselves into what is basically a political discussion, or maybe they have been wrong so often they feel a need to generate publicity for themselves.

Secondly, the US debt problem is not one of the ability to pay, but rather a political posturing for an upcoming election. Take a look at the following chart of countries that currently have AAA ratings for their sovereign debt.

Countries with AAA rating

	GDP (Billions)	Public Debt	Public Debt as % of GDP
United States	$ 14,720.00	$ 8,670.00	58.9%


Australia	$ 889.60	$ 199.27	22.4%
Austria	$ 332.90	$ 234.36	70.4%
Canada	$ 1,335.00	$ 453.90	34.0%
Denmark	$ 204.10	$ 88.99	43.6%
Finland	$ 185.40	$ 89.73	48.4%
France	$ 2,160.00	$ 1,814.40	84.0%
Germany	$ 2,951.00	$ 2,213.25	75.0%
The Netherlands	$ 680.40	$ 439.54	64.6%
Norway	$ 276.40	$ 131.84	47.7%
Singapore	$ 292.20	$ 299.21	102.4%
Sweden	$ 354.00	$ 144.43	40.8%
Switzerland	$ 326.90	$ 130.76	40.0%
United Kingdom	$ 2,189.00	$ 1,674.59	76.5%
Total Ex US	$ 12,176.90	$ 7,914.27	65.0%

You should note that the United States GDP is greater than the GDP of all other AAA rated countries combined. The US debt as a percentage of GDP is less than the weighted average of all the other countries and is about the midpoint of this group.

Now ask yourself which of these counties you would trust more than the US to lend your money to. Some on this list are just too small. Those in the European Union have their own debt woes via the weaker partners in the EU (Portugal, Ireland, Greece, and Spain) and there is some concern about the stability and permanence of the Euro itself. Some say China is the next world economic power. But even after a decade of break neck growth, the GDP of China is yet only a third that of the US. Besides who would trust their money to a state controlled economic system where wealth can be wiped out by fiat and true economic growth is questionable.

Finally, consider what alternatives a global investor has. There is not enough liquidity for the global economy to function without the US. Regardless of what the rating agencies threaten the US dollar and by extension US Treasuries, have always been and will likely continue to be for the foreseeable future, the de facto safe haven of the world. There is no country with the economic or military might to unseat the United States at the present time. When the going gets tough, everyone still turns to the United States as a refuge and looks to the United States for leadership. If US debt were downgrade to AA it would make no difference whatsoever. In the long run, all other debt is valued in relation to US debt. Sure maybe there would be a week or two of confusion, but in the end, regardless of the ranting of debt ratings agencies investors have voted with their pocketbooks that the United States is the premier credit on the face of the planet, and that should be enough.

Financial guidance without conflicts of interest

2011-07-21T10:49:00.002-04:00

The Chicago Tribune has an excellent article on the different standards of care investors can expect from their financial advisors. You can read the article here.

Tell Your Life Story On Proust

2011-07-20T11:02:00.002-04:00

I have written several times about leaving your heirs the gift of the life lessons you have learned. More valuable than mere possessions the love and experience you can pass on to the next generation can now be captured and shared privately at a site named Proust.

I hope you will check it out for yourself and maybe make use of it.

OTC Medical Supplies You Can Still Buy With Your FSA or HSA Account

2011-07-15T09:44:00.003-04:00

January of this year brought new restrictions on what over the counter medical supplies were qualified purchases for Flexible Spending Accounts and Health Savings Accounts, but there are still many items that qualify. These included:

Bandages and first aid kits
Contact lens cleaning solution
Eye drops
Motion sickness medications
Pregnancy test kits
Sunscreen with SPF 30 or greater

Free Credit Score

2011-07-14T11:03:00.002-04:00

Beginning July 21 if you are declined credit or do not receive a lenders best rate for a loan the lender must send you a free copy of the credit report it used to make it's lending decision. For more info see the NYT article.

Adding A Third Dimension to Bond Analysis

2011-07-13T14:06:00.003-04:00

A paper I wrote "Adding a Third Dimension to Bond Analysis" was recently selected for publication in the Journal of Financial Planning. In the paper I describe how a bond varies in value over its lifetime and how to construct a bond price curve using a spreadsheet program. Although the paper is technical in nature and intended for a professional audience I though my readers might be interested in the concepts presented in the paper. I have included a link to the article here, and you can access the spreadsheet and download a copy to your computer here.

Where Did My Tax Payments Go?

2011-04-26T13:02:00.002-04:00

April 18th has passed and unless you filed for an extension you have no paid your taxes for 2010. Ever wonder where all that money goes? Check out the web site Where did my tax dollars go? to find out.

Saver's Tax Credit: Incentive to Save for Retirement Now

2011-03-09T10:47:00.001-05:00

The Saver's Tax Credit was permanently enacted by the Pension Protection Act of 2006, but has been available sense 2002 under the economic growth and tax relief reconciliation act of 2001 (EGTRRA). This tax credit is an excellent opportunity for moderate-income households to save for retirement while lowering the amount of taxes they pay.

The Saver's Tax Credit not only assists moderate-income households to begin saving for retirement, but it also gives an incentive for recent graduates who are entering the work force to do so as well. Formally known as the "Retirement Savings Contributions Credit," the credit applies to the following qualifying contribution plans:

401(k) employer plans
SIMPLE and SEP plans
Government 457 plans
Traditional and Roth IRAs

Those who wish to participate in the credit must fulfill the following qualifications:

Eighteen years of age
Cannot be counted as a dependent on another person's return
Cannot be a full-time student
Cannot have been a full-time student for five or more months of the year

As of 2010, the following income limitations and corresponding filing statuses for are credit are:

Married filing jointly: Up to $55,000 annually
Head of Household: Up to $41,625 annually
Single, married filing separately, or qualifying widow(ers): Up to $27,750 annually

The rate given on the credit will depend on income-level and filing status, but range from 10% up to 50% and have a maximum contribution amount that can be applied to the credit of $2,000. This tax credit helps moderate-income households to save money on their taxes while still planning for the future. As this credit helps numerous households, it can be very beneficial to young adults who otherwise would not be saving for retirement. The cost of living throughout history has consistently increased and the majority of individuals begin saving for retirement too late in their lives. Those who are able to should take advantage of this great opportunity.

- Sara Hoy

Mortgage Delinquency Rates

2010-11-08T13:55:00.003-05:00

Mortgage Greed Will Bite Banks Again

2010-10-27T13:38:00.002-04:00

The foreclosure mess has served as a decoy to the real problem faced by the big banks in America. At the height of the real estate bubble banks and their mortgage origination arms were greedily issuing mortgages to just about anyone who could fog a mirror. The reason - fees. The mortgage originators collected their fees upfront which padded the pockets of shareholders and themselves through the payment of outrageous bonuses.

Now the dogs are back to bite them. The loans were mostly packaged and sold to individual investors, institutions, and even Freddie and Fannie. When the loans were sold they were warranted by the banks and investment firms to meet certain underwriting standards. They have fallen woefully short and now investors are beginning to exercise their right to 'put back' or make the banks repurchase the loans that did not meet the warranted standards.

Here is a great piece written by John Mauldin of Millinium Wave Advisors that points to the enormity of the problem. John writes " Anyone who owns stocks in banks with relatively large MBS exposure is not investing, they are gambling that the losses will not be more than management is telling them"

This is scarier than any Halloween ghost or goblin.

New Age Philanthropy

2010-06-24T13:05:00.003-04:00

In the sector of charitable giving a new trend is emerging. This trend pools together the resources of the middle income class and has become for the second largest recipient of charitable funds in the United States behind only the Red Cross. Since the mid 1990's Donor Advised Funds have flourished into a dominant force in philanthropy and continue to grow as more money managers and investors become aware of their simplicity, flexibility, and low cost.

Donor Advised Funds (DAFs) are just that, individuals give money or assets to a charity or sponsorship organization who sets up a Donor Advised Fund account. That account is then invested in options offered by the specific organization that the donor has chosen. From this account, donors can make grants of $50 or more to specific organizations or causes that are important to them. While this seems basic, there are many choices to be made in creating, investing, and continuing this charitable account. But first, I will explain WHY you should consider setting up a DAF if you're looking to make charitable donations.

Simplicity

The first major advantage DAFs have over private foundations is the simplicity of setting up the fund. For donor advised funds, a simple agreement between the sponsoring organization and the donor is all that is needed to create the account. This method is much easier than applying for IRS tax-exempt status, filing all required tax reports, and maintaining compliance with all the rules that apply to charitable foundations.

Low Cost

Another positive aspect of the Donor Advised Fund is the low cost to create it. Needing as little as a $5,000 in initial contributions those who wish to donate even on a modest scale can get involved in charitable giving. Further, grants to individual charities can be made in increments of as little as $50.

Flexibility

Flexibility is the foundation of the Donor Advised Fund. When choosing a specific plan with a sponsorship organization there are many various investment options to select from. The plans range from broad investment choices, where donors are allowed to choose their own investment portfolios- to basic mutual fund choices offered by the sponsor, and finally to the option of pooling together mutual funds to invest. Only rarely are donors offered no investment choice at all but in these situations the sponsoring organization chooses and manages the investment options for the donor.

In the past most donors have contributed through private foundations often set up by the individuals themselves or through a third party. There are many benefits in doing so: up to 30% of cash contributions can be deducted and 20% of all other assets can be written off as well.

However, the up and coming DAF has joined the race and offers even more bang for your buck as well as less hassle than is involved in giving through private foundations. Offering a write off of 50% of initial cash contributions and a 30% write off of other assets contributed, the Donor Advised Fund trumps the private foundation in terms of tax breaks, as well as potentially reducing estate taxes since more of your assets are donated to the fund.

Take a Few Hours and Unlock Some Cash

2010-03-30T11:35:00.001-04:00

Here's an excellent idea from the New York Times writer Ron Lieber.

Today, we introduce an interactive checklist to give you some ideas. It includes things you should do each year, like rebalancing your investments, and others that you might have to do only once or, at most, once in a while, like raising your insurance deductibles. The checklist is a living document and one we hope to improve over time, so please send us feedback from the link on its home page.

You can read the full article here.

Will You Be My Fiduciary

2010-02-23T12:54:00.003-05:00

Seldom have I read a blog post that I wish I could share with the entire world, but Tara Siegel Bernard, writing on 'Bucks' over at the New York Times just laid one down that I have to share with you. Her post titled 'Will You Be My Fiduciary' and the article that she wrote to go along with it deserve your attention. Tara posts a simple fiduciary pledge that you can at least use to start an important conversation with your advisor. While many wont sign it and some have legitimate reasons for not signing, it gives you a chance to learn why and have a hard conversation about what is in your best interests. I've posted the pledge below, but please read Tara's entire post here.

The Fiduciary Pledge

I, the undersigned, pledge to exercise my best efforts to always act in good faith and in the best interests of my client, _______, and will act as a fiduciary. I will provide written disclosure, in advance, of any conflicts of interest, which could reasonably compromise the impartiality of my advice. Moreover, in advance, I will disclose any and all fees I will receive as a result of this transaction and I will disclose any and all fees I pay to others for referring this client transaction to me. This pledge covers all services provided.

X________________________________

Date______________________________

Still Time to Save on 2009 Taxes

2010-01-27T09:43:00.003-05:00

Okay, it is well past the end of the year but here are a couple of ways you can still reduce that '09 tax bill.

If you itemize you can deduct contributions made in January and February 2010 to the Haiti relief efforts on your 2009 return if you like.
Deductible Traditional IRA contributions
Self Employed still have time to establish and fund a SEP (Simplified Employee Pension)

Holy Cow! They're finally catching on!

2009-12-22T13:33:00.005-05:00

Recently Registered Rep Magazine posted an article 'Forget Stock Market Gains , It's Best to Avoid Losses' Well, it's about time!

The article features a mutual fund company that is just now figuring out what we have known all along, the math of investment losses makes preserving capital the most important task facing individual investors. Maybe soon they will realize that folks don't buy stock because they enjoy getting proxy notices, we buy stock in hopes of actually making money, and if the market stinks we want to take our marbles somewhere else to play.

If you lose 10% it takes just over 11% to be back to even. That kind of gain is quite common for the S&P. If you suffer a 20% loss you need a 25% gain just to be even, years where the S&P rise 25% are rare. If you suffer a 50% loss it takes a 100% gain just to get back to even, the S&P will take years to achieve the double you need for that. It is easy to see that avoiding really big losses is the key to investor heaven.

But rather than put together a mutual fund that is fighting the last war, investors would do better to learn to recognize the warning signals that the markets exhibit and be prepared or even expect that you'll need to sell any investment from time to time.

Roth IRA Conversion Alert

2009-09-11T14:00:00.002-04:00

If you converted all or a part of a Traditional IRA to a Roth IRA in 2008 you may have an opportunity to recoup the income taxes you paid when making that conversion. But you must act before October 15th of this year.

If you made a conversion to a Roth IRA in 2008, the value of the securities you converted have probably gone down. This means you paid taxes on money you no longer have. You should consider "recharacterizing" that Roth IRA conversion back to a Traditional IRA. Recharacterization is the IRS lingo for canceling the conversion and it helps you in a couple of ways. First, you can get a refund of the taxes you paid on the converted IRA funds and secondly, you can redo the conversion 31 days later, potentially producing even more tax free income.

To learn more see the entire article from Ed Slott in this months Financial Planning magazine.

TARP Could Be Watershed For Taxpayers

2009-08-19T14:31:00.002-04:00

Banks have been repaying the loans they received last fall at a steady pace. The treasury department has received their principle and 8% interest from over 30 banks. Additionally, the treasury has made some tidy profits on the stock warrants the received as part of the bailout package. Some of the big profits for the government include $950 million from Morgan Stanley, $340 million from American Express, and $1.1 Billion from Goldman Sachs.

Is it possible that the TARP program could pay for itself and provide extra fund to cover some of the other items in the stimulus package?

Stay tuned!

Maximize the Benefit of a Losing Variable Annuity

2009-07-17T11:13:00.004-04:00

I had the chance back in the 01-03 bear market to help some clients with variable annuities maximize the benefits of investments that had gone sour, and just this past week ran across another opportunity to help a potential client with this same strategy. Here is what to look for:

You purchased a variable annuity that has lost value.
The death benefit of your annuity is calculated based on a dollar for dollar reduction for withdrawals.

Here is how this strategy works:

Let's say you originally put $100,000 in the annuity and the value has now dropped to $70,000. The death benefit of this annuity equals premium payments less withdrawals on a dollar for dollar basis. You withdraw most of the money from your annuity, leaving only enough to keep the policy active. Let's say you must leave $5,000 in the policy so the insurance company can't cancel the contract. That means you withdraw $65,000 from the policy and move that money elsewhere to recover as the markets recover. Your death benefit on the annuity falls from $100,000 to $35,000 refecting this withdrawal.

What you have done in effect is to create a synthetic paid up whole life insurance policy that will pay out one day to your heirs. Meanwhile your remaining value can be invested to create even more wealth and income for you and your heirs.

This opportunity may also apply if you have a 403b plan that utilizes group variable annuities.

This strategy will not work if the death benefit of your policy is calculated on a pro rata basis, and the insurance industry has caught on to this ploy so most new policies have a pro rata calculation. So before you exchange an old annuity or just give up on it check to see if there may be a better way to skin that cat.

Understanding Money Supply and the Federal Reserve

2009-07-08T10:29:00.009-04:00

I have to disagree with the talking heads I've seen on television recently, warning investors of hyper inflation. According to these 'experts' a serious bout of inflation is imminent due to the tremendous injections of liquidity by the Federal Reserve. I believe these pundits are overlooking one of the most basic factors in economics and I fear some of the talk is more politically motivated than financially motivated. While it is true that the Federal Reserve has been pumping money into our economy, the important thing these pundits miss is the 'why'.

There are two components to the effective money supply in the US economy. One is the amount of cash flowing through the economy, and the second is the velocity of the cash flowing through the economy. Of the two, the velocity of money is the more important.

If you studied economics is college you will recall that the velocity of money is normally a function of bank reserve requirements, which are set by the Fed. Simply put, if the reserve requirements are set at 20% then each dollar does the work of five dollars (100/20). If the reserve requirements are set at 10% then each dollar does the work of $10 (100/10).

I say under normal conditions because what we have seen during this credit crunch is anything but normal. Usually banks lend as much as they are allowed to lend based on the reserve requirements. That is how they make profits. However, because of loose lending standards in the past and questionable reserves, lending in our economy has slowed to a virtual crawl. Couple this decreased lending with increased reserve requirements for non bank financial entities such as Merrill Lynch, Morgan Stanley, and Goldman Sacks and you have created a serious speed bump for the velocity of money in our economy.

As lending contracts, the velocity of money in our system contracts. Because velocity is usually a multiplier of the physical currency in circulation any contraction in velocity reduces the effective liquidity in our economy many times.

The Federal Reserve's policy of providing liquidity to our ailing economy is not currently inflationary, it is simply an attempt to offset the slowing velocity of money. Without this infusion of liquidity there is a real danger of deflation, which is much harder for the Fed to fight than inflation. It is easier to slow the economy down than it is to speed the economy up.

The Federal Reserve will need to be vigilant as the economy eventually improves. The liquidity injected into the system could become inflationary as the velocity of money through our economy accelerates. But that won't occur until the credit crunch abates, which is a problem we would all like to see come sooner rather than later. Until then investors should not be overly concerned with inflation. Coming to the party too soon is nearly as bad as staying too late.

Cash for Clunkers

2009-06-26T14:27:00.002-04:00

Have a kids car that your ready to trade in? That old clunker in he driveway could bring big bucks under a new government program aimed to stimulate the economy and clean the environment.

Get a credit from Uncle Sam to trade. The amount of the credit is $3,500 or $4,500, and generally depends on the type of vehicle you purchase and the difference in fuel economy between the purchased vehicle and the trade-in vehicle. Different requirements apply for work trucks.

* Your vehicle must be less than 25 years old on the trade-in date
* Only purchase or lease of new vehicles qualify
* Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
* Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
* You don't need a voucher, dealers will apply a credit at purchase

For more info go to cars.gov

Wall of Worry

2009-05-05T09:58:00.002-04:00

It is said all bull markets begin by climbing a wall of worry. You haven't heard that phrase used in the media recently, so let me be the first to bring it out of the closet and dust it off. The market seems to be gaining strength in spite of the poor state of the economy. Remember the market is a predictive mechanism, not a reactive one. The market is telling us that all the best minds in the world of finance believe the economy will be doing better in about six months. Look for a Merry Christmas in 2009. You are probably to scared and shell shocked to step in here, but you should at least be getting your toes wet.

Overload

2009-03-24T10:11:00.002-04:00

Feel like everything is moving too fast sometimes? You may be right.

Lots of data, very little wisdom.

Bits from around the Web

2009-03-09T14:35:00.001-04:00

Break Up for Hartford Financial? - The Hartford Financial Services Group, currently embroiled in dealing with financial losses and ratings downgrades, reportedly is negotiating a possible sale of its life insurance and annuity operations to Sun Life Financial Inc.

The Conflicts of Interest in Not Being a Fiduciary; Hang Charlie Merrill In Effigy? - The story told at The Big Picture yesterday is about the Merrill reps who do the right thing for their clients at the reps’ own expense; to be more specific, it’s the story of two “stock jockey” partners who turned bearish early last year, moving about 75 percent of their client assets into money market funds (AUMs were, combined, over $300 million, according to the story). As a result, their combined gross production dropped to “under $1 million” from over $3 million. Their branch manager informed them that, as a result, in 2009, their payout on the grid would drop to 30 percent from 43 percent. Ouch!

Dividend Payouts Decline - Last year was the worst ever for dividend reductions among Standard & Poor's 500 stock-index companies. In the final three months of 2008 alone, $15.9 billion worth of S&P 500 dividend payouts were whisked off the table.

Miss the Ten Worst Days - If you miss an equal amount of the best and worst days, you outperform buy and hold regardless of how many days you miss! This has wide-ranging ramifications for us.

Average Is Not Normal

2009-02-11T11:31:00.003-05:00

Here is a great slideshow from Slideshare, that was posted by planner Carl Richards on Behavior Gap. Take a few minutes for a really great lesson in investing.

Average Is Not Normal

View more presentations from Carl Richards. (tags: behavior gap)

South Carolina Residents Can Now Get Free Credit Freeze

2009-01-26T11:46:00.002-05:00

A security freeze means that your file cannot be shared with potential creditors. A security freeze can help prevent new account identity theft. Most businesses will not open credit accounts without first checking a consumer’s credit history. If your credit files are frozen, even someone who has your name and Social Security number probably would not be able to obtain credit in your name.

Under new rules that went into effect this year South Carolina residents can now place a freeze on their credit reports and temporarily unfreeze those same reports for no charge.

It is a bit cumbersome to start, but may be worth the trouble to protect your identity. To find out the steps required to place a freeze on your reports you can follow this link.

Consumers Finally Stop Spending

2009-01-06T16:14:00.002-05:00

The Wall Street Journal reports:

"U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years."

Under The Matress Is Good

2008-12-10T09:37:00.002-05:00

Zero Yield: The flight to safety achieved a new benchmark as Treasury sold four-week bills at a 0% yield yesterday, and the yield on three-month bills briefly turned negative.

This is certainly a sign of fear gone wild. There is no trust left if institutions are willing to pay the government to hold their cash for them.

Remember, the capital markets are predictive mechanisms. They do not reflect what is happening today but rather the combined forecasts of all the participants.

For contrarians this has to be a good sign.

How Bad Can It Get?

2008-12-01T19:02:00.002-05:00

Some tidbits I picked up over the last couple of weeks. Thanks to the guys at MFS.

THE LAST TIME - The S&P 500 is down 37.7% YTD (total return), on pace to suffer its worst calendar year result since 1931 when the index fell 43.3%. In the 5-years after the 1931 loss (i.e., 1932-36), the S&P 500 gained +176% or an average annual gain of +22.5 (total return). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market.

WORST IN 66 YEARS - The closing low point during the current bear market occurred on 11/20/08 (i.e., just 11 days ago) when the S&P 500 finished at 752, down 51.9% from its 10/09/07 peak close of 1565. The “peak to trough” drop of 51.9% is the worst for the stock index since 1942

A LOWER LOW - The S&P 500’s closing low value of 752 during the current bear market (set on 11/20/08) is less than the closing low point from the last bear market (i.e., the 2000-02 stock market decline), the first time that has happened since the low close from the 1973-74 bear market was less than the low close from the 1968-70 bear market

REAL ESTATE SALES - In July 2006, the median sales price of existing homes sold nationwide peaked at $230,200. The national median sales price has fallen to $183,300 as of October 2008, a 20% decline and a fall of almost $47,000 (source: National Association of Realtors).

WISHFUL THINKING? - Nearly 1 out of every 3 US homeowners (32%) believes the value of his/her primary residence has increased in value over the last year (source: USA Today).

BANKING BUSINESS - 22 banks have failed in the country YTD. Over the previous 6 calendar years (2002-07), 22 banks failed in the USA. As of 9/30/08, the government is monitoring 171 banks that are in danger of failing (source: Federal Deposit Insurance Corporation).

THE RANGE - In the 1-year following the low point from each of the 9 bear markets that have occurred since 1957 (not counting the current 10th bear market) the S&P 500 has experienced a double-digit return. The best of the 9 produced a +58.3% return. The worst of the 9 was up +23.2%. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).

THEY TOOK THEIR TIME - 7 years ago this Wednesday (11/26/01), the organization responsible for determining the beginning and end dates of US recessions declared that a recession had started on 3/31/01. A later announcement that this particular recession had lasted only 8 months and that it had ended on 11/30/01 was made public on 7/17/03 or more than 1 ½ years later (source: National Bureau of Economic Research).

As of 12-01-2008 they made it official that we are currently in a recession that began in December 2007.

Bye-bye, Dinosaurs

2008-11-12T15:13:00.002-05:00

Okay, I am biased on this subject, but here is an article about the future of the financial services business that I cannot help but share. The author, Bob Veres, has been at the forefront of the movement to provide fiduciary care for investors. His most recent article in Financial Planning Magazine makes some observations I can't make about my competitors.

It was almost seven years ago that I predicted the demise of the big brokerage organizations, so the shotgun acquisition of Bear Stearns, the bankruptcy filing of Lehman Brothers, the sale of Merrill Lynch and the reformulation of Morgan Stanley and Goldman Sachs as banks simply confirmed a trend that started long before Prudential Securities was sold to Wachovia or Shearson or when Kidder-Peabody and Drexel Burnham Lambert went the way of all flesh.

My reasoning at the time still holds. What was the purpose of these large institutions in our modern financial marketplace? We have independent RIA firms offering increasingly unconflicted financial advice. We have more than enough mutual funds to fill the void left by the wirehouses' high-expense, low-performance asset management divisions. I'm even having trouble seeing why the capital markets need somebody to underwrite the shares of new public companies, at a collusive cost of 7.5% of every dollar raised. Haven't we successfully tested Internet-based IPO auctions, which produce better pricing at a small fraction of the cost?

Bob goes on to lament the loss of some of the things these mega firms provided.

We'll also miss the advertising. The brokerage firms allocated a generous portion of their profits to marketing campaigns that communicated a powerful ideal of what financial planning and financial services should be. With extraordinary creativity, they built consumer demand for that wise counselor who could help you finance your daughter's dream wedding and your once-in-a-lifetime vacation around the world. Who among us is going to dig into his or her pockets to pay to air that message during the next Super Bowl?

I hope you will take the time to read the article in its entirety and share it with your friends.

Featured in The Sun News

2008-10-06T14:44:00.002-04:00

In the past couple of weeks I have been contacted several times by our local newspaper, The Sun News. They posted a video interview from last Friday on their web site. Here's a link if you'd like to view.

Questions on the Credit Crunch

2008-09-29T18:00:00.000-04:00

As I write this the House has just rejected the plan proposed by Secretary Paulson to throw a lifeline to the markets.

Last week our local paper the Sun News asked me to respond to some questions from their readers who were concerned about how the credit crisis would affect them. You may have some of the same questions so I'll post my responses here.

Is there a safe place to put away money anymore?

Safety is always relative to what your needs are. If you need to earn 5% on your investments to pay for your living expenses, then the surety of earning 3.38% on a 10 year US Treasury Note isn't a safe strategy.

If your question is where can I safely park some money for a short time, then you should know that US Treasury Bills, Bonds, and Notes are considered the safest and most secure investments in the world. Bank certificates of deposit to the degree they are insured by the FDIC are also very safe for short term investments. However, be sure to stay within the FDIC limits of $100,000 per depositor ($250,000 for IRA accounts). Depositors only received 50 cents on every dollar over the FDIC insurance limit when Indy Mac was closed. Finally, money market accounts that invest only in treasury instruments are also a safe haven in uncertain times.

I've heard that insurance companies have to keep a very high percentage of their assets (it may be called reserves) in very secure financial instruments in case they have a high number of policy claims. If this is true, how is AIG in so much trouble?

Yes, AIG itself was required to keep reserves that were "safe". The reserve requirements are based on the amount of risk assumed by the company.

There are a few things that can go wrong. First, the 'safe reserves' could turn out to be not so safe after all, as has been the case with some mortgage investments. Secondly, the value of these reserves could fall. Because accounting standards require companies to mark the value of their reserves to market, and the market for many mortgage securities has dried up, the value of the reserves has gone down which is why you read about so many companies having to raise extra capital. Finally, the risk assumptions on which the reserve requirements are based could turn out to be wrong. As in the case of AIG, they were insuring against credit defaults of other companies and were hit by the perfect storm that proved too much to navigate. Too many things went wrong at once, exposing the fact that their reserves were inadequate.

Today many financial companies are being hit by a combination of all the above problems. That is why this is such a big problem requiring so much intervention by the Federal Reserve and the Treasury Department.

I am 55 yrs. old and have a 401 K-mostly stocks, Should I change my current contributions to Bonds?

This is a hard question to answer without more information. When do you plan to retire? Do you already have enough money to fund the retirement lifestyle you have always dreamed about? What other investments do you have? etc.

My advise to those who are contributing to a 401k or any other retirement plan is to first have a plan. Living along the coast we know that hurricanes come from time to time. We make plans for how to deal with these storms before the storm hits, not when we are in the middle of a storm. If you have a plan then you know what to do when the storm arrives and don't make mistakes in panic.

I have an account with AIG, buying stock...they bought out Sharebuilders.com ; Is this in danger too?

Not now. The government bailout of AIG means there will not be a bankruptcy filing - at least not for the next two years. In the meantime AIG will be selling some assets to repay the US Treasury and their broker-dealer unit may well be an asset they sell.

Can someone tell me, why don't the Bank's reverse the bad loan interest rates, instead of the American public trying to keep up with bad loans, and give everyone the same interest rates?

I believe what you are asking is why banks do not reduce the interest rates on the sub prime loans they have made. You should realize that they can't because they no longer own the loan. A large part of the mortgage problem is that banks and mortgage brokers have sold consumers loans on which they merely collect a fee or commission. The mortgages are then aggregated into large blocks, sliced and diced by Wall Street, and resold to individual and institutional investors around the world. The bank then collects a loan servicing fee to collect the payments on behalf of the mortgage holders. No one really knows who owns your mortgage, so the only way to reduce the rate is to refinance the entire loan (another fee for the banks). Banks are often unwilling to do this because, much to the surprise of many, the value of the real estate involved has gone down. In many cases the value of the underlying real estate is lower than the amount owned on the mortgage. This is the classic caught between a rock and a hard place.

I see a number of bank money market accounts paying rates of 3.75% listed on Money-Rates.com . Aren't these a lot better than money markets from mutual funds because they are FDIC-insured not to mention paying much higher rates?

You are right sometimes banks are willing to pay more for money market deposits than market rates allow money market mutual funds to earn and distribute to shareholders. As long as you arrange ownership of your accounts so that they are fully insured by the FDIC it is a good alternative. The FDIC even has an online tool you can use to help maximize your insurance protection. You can find it at http://www.fdic.gov/edie/.

But please beware of having deposits with any bank that are not covered by the FDIC. When Indy Mac was taken over by the banking regulators depositors with deposits not covered by insurance have so far received only 50 cents for every dollar that was not insured.

Sub Prime Mortgage Mess

2008-09-25T10:20:00.004-04:00

I found this great cartoon that explains a lot of what went wrong with the mortgage market via BoingBoing. It is a hilarious primer but you should be forewarned the language is X-rated.

Grading Your 401k

2008-09-02T18:00:00.002-04:00

Sixty five million Americans now invest for retirement through 401(k)s and similar plans. Defined contribution plans have become the centerpiece of many American’s retirement savings. How can you determine if your plan makes the grade? Here are some of the components to look at when judging your company’s 401k.

Fees

Low fees and expenses are important to getting the most benefit from your 401k. Unfortunately it is often hard to determine how much you are paying in investment, administrative, legal, record keeping, and accounting expenses. Now the various fees are not secrets, but are typically hidden in the fine print of multiple documents available in multiple places, so it's very hard for individual investors to figure out what has been subtracted from their individual accounts.

Fortunately, under a proposed Labor Department regulation, scheduled to go into effect January 1 of 2009, your employer may be required to tell you these fees, and disclose in dollar terms each quarter how much you are being charges for these various fees.

What levels of expenses are appropriate for your plan? It depends on the size of your plan. But for all but the smallest plans (plans with less than $500,000 in total assets) total expenses of 1% to 1.5% is reasonable. The total expenses include investment management, record keeping and accounting, legal, and administrative expenses.

If your plan charges more you should question those in charge of the plan. The company sponsoring the plan has a fiduciary duty to plan participants and they may be just as much in the dark as you about the fees being charged.

Matching

Matching is a key feature of 401(k)s participation rates increase when an employer matches a participant's contribution in one form or another. Most large employers realize that and many small companies have matching programs under the ‘safe harbor’ rules, that allow highly compensated employees and business owners to maximize their 401k deferrals.

No restrictions on sales of employer stock

In the wake of such high profile corporate bankruptcies such as Enron and more recently Bear Stearns the importance of not having too much of your retirement money invested in employer stock is evident. The best plans, at least of those that use employer stock funds, have no barriers to immediate diversification.

Automatic Enrollment

The best 401(k) plans automatically enroll workers into qualified default investment option and automatically increase their contributions over time. With auto enrollment more employees end up saving for retirement, and they start saving earlier, making their chance of reaching their retirement goals higher.

Investment Options

The best plans offer enough investment options to allow you to build a well diversified portfolio. They often include large cap, mid cap, small cap, and international stock funds, as well as bond funds and money market or guaranteed income options. Many of the best plans now offer target date or risk based portfolios to simplify your selections. The best plans also offer automatic rebalancing of your investments at regular intervals.

Education

Employee communications and education is an important piece of keeping you informed of the changes that could affect your retirement plans. The best plans offer ongoing investment education and financial planning information.

Pricing

Some of the best 401(k) plans tend to invest in funds that have what's called institutional pricing. Most mutual funds come in many classes, with some classes having higher fees than others. Plans that use funds with institutional pricing typically have the lowest fees, but in any event your plan should be using the share class with the lowest expenses available to the plan based on the plan size.

Saving Money By Saving Gas

2008-08-09T12:04:00.001-04:00

With prices at the pump jumping over 50% in the last two years, getting the most from a gallon of fuel can make a big difference in your expenses.

The government offers tips on increasing your gas mileage at fueleconomy.gov.

I was surprised by this graph that shows your fuel economy is maximized at speeds between 35 and 60. Removing weight also increases your fuel economy so I guess my golf clubs will have to stay in the garage instead of my trunk. Tire pressure can also shave up to 3% off the cost of fuel. Check out this site for more fuel saving tips.

Housing Bill Offers Help For Many

2008-08-05T14:22:00.003-04:00

The housing bill recently signed by President Bush offers relief for many beyond those in danger of loosing heir homes to foreclosure. In addition to helping those hurt by falling real estate prices and adjustable rate mortgages Congress included breaks for first time homeowners, reverse mortgage borrowers, and jumbo loan mortgage holders.

First Time Homeowners - If you are buying a home for the first time you may be eligible for a federal tax credit of $7,500 or 10% of the purchase price whichever is lower. To qualify for the credit you must have modifies adjusted gross income of less than $75,000 for single filers, or $150,000 for married joint filers. For single filers the credit is reduced for modified adjusted gross income above $75,000 and disappears at $95,000, for joint filers the credit disappears for modified adjusted gross income above $170,000.

Reverse Mortgage Borrowers - The bill limits origination fees on reverse mortgages to 2% on loans up to $200,000 and then 1% on amounts beyond that up to a cap of $6,000. Congress also increased the maximum loan amounts for HUD issued loans.

Jumbo Mortgage Borrowers - Jumbo mortgages often cost more than conventional mortgages. By making permanent the increased lending limits for Fannie Mae and Freddie Mac you may be able to refinance a jumbo mortgage to a lower rate conventional mortgage for loans up to 115% of local median home price up to a $625,000 ceiling.

401k Hidden Fees

2008-06-30T14:23:00.002-04:00

Millions of Americans are counting on their 401k nest egg to provide a substantial portion of their retirement income. Unfortunately hidden fees and charges can sap thousands of dollars from this nest egg. The fees paid by participants are hard to find and the paperwork byzantine. Bloomberg TV recently aired a segment on these hidden fees that will be of interest to anyone who participates in or sponsors a 401k plan. You can view the segment here (Windows Media Player required).

Taking The Mystery Out Of Retirement

2008-06-10T23:44:00.000-04:00

Uncle Sam offers a useful retirement planning and financial education tool "Taking the Mystery Out of Retirement Planning". The Department of Labor offers the sixty two page booklet as a free download from their web site, or as a free printed booklet by calling 1-866-444-3272.

The online worksheets walk you through the budgeting process and calculate future needs adjusted for inflation. Finally, the program will calculate the monthly saving you'll need to maintain your lifestyle. Although the calculator is designed for those 50 and over it is a helpful exercise for all who have questions about their retirement needs.

Kitchen Table Planning - How Much Will You Need

2008-06-10T11:40:00.000-04:00

If you were planning a vacation you would start with a desired destination, select the dates you can go, determine your budget, and then tweak your plans to fit your budget. It is the same with financial planning. You have to determine where you want to go (how much income or how big a nest egg you need), set a target date for getting there, determine how much you need to save and invest, and then tweak your plan for the realities of your situation.

If you are planning for a down payment on a home you will have to amass a lump sum that you will be spending all at once. So calculating your need is pretty straight forward. If you want to buy a $300,000 house, you will need to save at least a 10% down payment, or $30,000.

If you are planning to send a child to college you can look up the cost of tuition, books, and living expenses at the schools web site. But unless your child is starting school this year you will have to estimate what future expenses might be, or you will surely come up short due to likely increases in costs between now and the time your student enrolls.

So how do you plan for such price increases? Well, if you do a little snooping around you will learn that college costs have been increasing at about twice the level of general inflation. Armed with that and the number of years until your student enters college, you can make an educated estimate of how much you will need in the future to pay for this expense, by using one of the 'secret' formulas of financial planning.

It is called the Future Value formula. It is, like the name implies, a formula to calculate the compound interest future value of something. Here's the 'secret' formula:

FV = PV * ( 1 + i )^N

PV = present value
FV = future value (maturity value)
i = interest rate in percent per period
N = number of periods

When estimating the future cost of something the i represents the rate you expect that something to go up in real terms. To learn about real rates of return see this previous post.

So lets work through an example. I have a daughter who will enter college in 12 years. The cost of attending a university in my state is currently about $17,000 per year, so in todays dollars I would need $68,000 to pay for her education.

PV = $68,000
FV = future value = ?
i = interest rate in percent per period = 6% (nominal college inflation)-3%(expected general inflation rate) =3%
N = number of periods = 12 years

FV = $68,000 * ( 1 + .03)¹²If you are like me you don't have one of those fancy TI calculators you kids use, but that is okay. to solve the ( 1 + .03)¹² part you just add 1 and .03 then enter 1.03 times 1.03 into your basic calculator and hit the enter button twelve times. That gives you 1.4685. Now multiply $68,000 by the 1.4685, and presto, you find you will need about $99,860 (lets call it an even $100,000) in inflation adjusted dollars to send little Debbie off to college when the time comes.

Finally, when you are planning for retirement the 'how much will I need?' question is usually answered with a per year income figure. Here you have to estimate what you would need if you retired today. You don't need to adjust this amount for inflation because we will be adjusting investment returns for inflation as we go. So just figure what you would need today (you should make adjustments for children that are grown and gone, and any debts like your mortgage that you expect to be paid off.)

From this income need you should subtract any pension, social security, or annuity income you will receive during retirement. This leaves you with the annual income needs you will have to pay for yourself. For example; I need $50,000 in retirement income. I expect to receive $1,400 a month or $16,800 in social security benefits and a company pension of $12,000 per year. That leaves me with a shortfall of $21,200 per year that will have to come from my investments.

If you have read my post on safe withdrawal rates, you'll remember that the estimated real rate of return on your investments is your maximum withdrawal rate. Let's say my expected real rate of return is 5%. To estimate how much I would have to have in savings and investments to fund the $21,200 per year shortfall in retirement income I would simply divide $21,200 by .05. This tells me I need to have $424,000 in investments to fund the balance of my retirement income needs.

Epiphanies

2008-06-10T11:25:00.002-04:00

Nick Murray, who I have mentioned before as one of the great minds in the investment advisory business, celebrates his 41st anniversary as an advisor with an column in 'Financial Advisor' magazine titled Forty-One Epiphanies. Distilling a lifetime of experience into forty one snippets of wisdom is something only Nick could do. Here's a sampling:

The world does not end. It only seems to be ending. This time is never different.
Disciplined diversification is a pact with heaven: I will never own enough of any one thing to be able to make a killing in it; I will never own enough of any one thing to be able to be killed by it.
The most fascinating aspect of all financial crises is their essential sameness.
The dominate determinant of the real long-term returns real people really get isn't investment performance. It's investor behavior.

Kitchen Table Planning - The 'Secret' Formulas of Financial Planning

2008-04-24T13:00:00.000-04:00

If you are like me math class was not the highlight of your day when you were in school. There are many formulas that melted from my brain like snow from a roof just as soon as I completed the test.

But there are some math formulas that were worth relearning. I use them every week. You might not need them but once a year. I don't expect that you will remember them five minutes after reading them, but knowing how they are used can help you reach your financial goals, so remember that.

The first formula is Future Value for Compound Interest. Just like the name implies it is a way to calculate the future value of something that is compounding. Here it is;

FV = PV * ( 1 + i )^N

PV = present value
FV = future value
i = interest rate in percent per period
N = number of periods

Use it if you have a sum of money today and you need to know how much it will grow to at some future date. You don't even need a fancy calculator to use it. Just take the part ( 1 + i ) put it in a basic calculator as whatever the sum is times itself, then hit the enter key N number of times.

The next formula is the Annuity formula. It will tell you how much you can expect to have in the future is you invest some amount on a regular basis (monthly, annually, etc.) and earn some rate of compounded interest.

FV = PMT * [ ( ( 1 + i )^N - 1 ) / i ]

FV = future value (maturity value)
PMT = payment per period
i = interest rate in percent per period
N = number of periods

If you contribute to an IRA every year you can use this formula to calculate what it could be worth when you retire. Don't let all the brackets scarer you, just do it a step at a time, working from the inside out.

The last formula is the Payment formula. You use it to calculate how large a payment you would need to make to pay off a loan or to accumulate a pile of money. With the internet it is easier to go to a site with loan payment calculators, but I'm a bit of a traditionalist.

PMT = P*i( 1 + i )^N/( 1 + i )^N-1

PMT = P*i/1-(1+i)-N
In future posts I'll explain how you can use these formulas to craft your kithen table financial plan.

Equity Index Annuities - Dateline Undercover Investigation

2008-04-15T12:58:00.002-04:00

With the stock market struggling this year I have noticed the ads for 'retire right' and other seminars that tout equity index annuities hitting the local paper again. If you or someone you know has attended one of these seminars, or is considering investing in one of these products, you might want to watch the April 13th broadcast of Dateline NBC.

The Dateline crew does an undercover investigation of equity index annuity sales practices that is eye opening.

Understanding The Credit Crunch - Part 2

2008-03-27T14:51:00.003-04:00

An earlier post Understanding The Credit Crunch remains one of the most widely read entries on this blog. The fact that many are still grappling with how we got into this predicament, explains how exasperating the problem is. The Federal Reserve has been aggressively lowing interest rates, opening the loan window to more firms, and accepting more collateral in an effort to stem the damage. The problem has spread well beyond the sub prime sector with the auction rate preferred market freezing up and municipal securities falling in value being examples of just how far the credit crunch has spread.

To briefly elaborate on my previous post, the problem stems as much from leverage as it does from credit quality. Margin requirements, which are determined by the Federal Reserve, allowed hedge funds and other institutional investors to borrow against their bond holdings and leverage their investment to many times their invested capital. Just like in the 20's, as long as prices rose the leverage allowed for much more profit. However, when prices began to fall it was like someone shouting 'fire!' in a crowded theater, everyone rushed for the exits at the same time and many were trampled in the stampede.

You probably can understand leverage best by thinking of your own home. Most people have seen the price of their home go up substantially over the last decade. Yet the long term compound increase in the median home price has averaged a little over 6% a year. How can so many people make so much money in real estate if prices only rise about 6% annually? The answer is leverage. If you had bought a home 10 years ago for $100,000 and it appreciated at 6% then today it would be worth about $179,000, a profit of $79,000. But you were unlikely to pay cash for your home. Instead you put down 10% or $10,000 and borrowed the rest. So that means your cash investment grow from $10,000 to $79,000 for an annual return on invested capital of about 23% a year! Nice work if you can get it.

As long as prices rise your leverage works hard for you. But woe to those who buy at market peaks. If your home falls by 10% you have lost all of your equity. Any further decrease leaves you underwater on your 'safe' investment. This is what has happened to many homeowners, and it is the same problem in the credit markets. The leverage has wiped out the equity of many aggressive investors, forcing liquidations which suppresses the prices of those securities and causes the liquidation of even more types of investments, in a vicious circle that has threatened to cause a collapse of the banking system.

That is why the Federal Reserve stepped in to work out a deal for Bear Stearns, if BS had gone into bankruptcy is could have caused a collapse of confidence in an already shaky system and led to a total collapse of our banking system. That the Fed has taken such extraordinary steps is a testament to just how serious this problem has become.

Fortunately, at least some in our government and in governments around the world understand how dire our circumstances are and have begun to take the concerted steps necessary to bring balance back to the global banking system.

Kitchen Table Planning - Safe Withdrawal Rates

2008-03-26T15:13:00.003-04:00

How much money you can take out of your investments without running out of money is a critical question when building any financial plan. As a member of the Financial Planning Association I hear from other members and read in the financial press many theories on how to calculate a safe withdrawal rate. Some of the ideas put forth are elegant, some are complicated, and all ultimately fail because they attempt to do the impossible, which is to predict a future event. The future is unknowable, so having any degree of confidence in any method of projecting historic calculations on future events is dubious at best. There is a reason the SEC requires the disclaimer that past results are not indicative of future returns.

The uncertainty of safe withdrawal rates is one of the reasons I advise clients to try to be debt free when they reach retirement age. If your house is paid for and you have no consumer debt, your living expenses can be managed much more easily. You can adjust your lifestyle without too much pain to cope with unexpected events, and adjust withdrawal rates to protect your nest egg.

That said, I do believe having a financial plan gives you a much greater chance of success than not having a plan, and you must select some withdrawal rate that you believe (or maybe hope) to be safe to complete any retirement planning calculations. So here I go with what I believe is as good a way of calculating your safe withdrawal rate as any.

If you've been reading this blog a while you know about estimating your rate of return for a diversified portfolio, and you know how to calculate your real rate of return. My simple if imperfect suggestion for calculating your personal safe withdrawal rate is to use the expected real rate of return of your portfolio. This amount is already adjusted for inflation and you will probably have to make some adjustments along the way anyway. If you can afford to take less, great! Your odds of success are probably improved. Oh, and one other thing, when you reach retirement try to keep one years living expenses allocated to cash, this will help if things get really dismal. Having a large cash reserve will preclude you from having to sell other securities at in opportune times. At least for a year.

Can't Buy Me Love

2008-03-24T13:05:00.003-04:00

How much money you have has little impact on your happiness, but it turns out how you spend money can have a profound effect. The AP reports that charitable giving has a big impact on our happiness.

"People who made gifts to others or to charities reported they were happier than folks who didn't share, according to a report in Friday's issue of the journal Science.

Lead researcher Elizabeth W. Dunn, an assistant professor of psychology at the University of British Columbia, said she wasn't surprised that doing something for others made people happy.

But she was struck by how big the effect was and that how people spent money was more important than how much money they had."

You can read the full story here.

Medicare Advantage or Disadvantage?

2008-02-28T14:16:00.004-05:00

You may have seen the ads on TV for Medicare Advantage Plans. I've noticed several in the past couple of weeks. Insurance companies want to provide you better and less expensive coverage than Medicare. The chances of you seeing these ads has a lot to do with where you live.

Medicare Advantage Plans (HMO's and PPO's) and a subset Private Fee-for-Service plans work for the insurance companies in places where the payments they receive from Medicare are generally greater than the costs of providing those services. So the marketing is generally targeted to the most profitable areas for the insurance companies.

Many plans will advertise broad acceptance, but you should check with your personal physicians and other health care providers before you make a decision, sometimes the delivery is less than the promise.

The New York Times reported recently that the GAO has questioned the effectiveness of Medicare Advantage plans:

"But, the report said, certain costs are not counted toward the out-of-pocket limits established by some insurers. Thus, it said, among Medicare plans with out-of-pocket limits, 29 percent exclude the cost of some cancer drugs, 23 percent exclude the cost of some mental health services and 21 percent exclude home health care expenses."

The plans can be cost effective by reducing your total premium payments or increasing your benefits. If you choose a PFFS plan your medigap policy becomes unnecessary, but the should you decide to go back to traditional Medicare coverage a new medigap policy may cost more. You generally sign up for these plans November 15 through December 31 of each year. Once you have enrolled you remain in the plan for at least the next calendar year.

If you did not select a medigap policy during the guaranteed acceptance window one of these plans could be a good choice for you, but check for any restrictions on access before you move outside of the traditional Medicare coverage.

Kitchen Table Planning - Real Rate of Return

2008-02-21T13:32:00.003-05:00

When you are working on your kitchen table plans, you will need to understand real rates of return. Your real rate of return is simply your investment return less the anticipated inflation rate.

For example if you have calculated your expected portfolio return at 8% and you anticipate that inflation will average 3% then your real rate of return is 5%.

This is important because over long periods of time inflation will erode the value of the dollars you have available to pay for a financial goal. If you are planning for retirement the dollars you will need to provide a certain level of income 20 years from now will be significantly higher than the dollars you need to retire today. If in fact inflation averaged just 3% over the next 20 years then todays dollar would only buy $0.55 worth of groceries when you reach retirement.

I see this often. Someone will say 'I have $500,000, I think I should be able to earn 8%, so I should be able to spend $40,000 each year.' Unfortunately this isn't how to achieve a worry free retirement. If you earned 8% you would have to reinvest 3% to offset inflation leaving you with 5% to spend. So the couple in the above example could only take an income of $25,000 from their $500,000 nest egg.

Or you may say 'I will need $1,000,000 to provide extra income in my retirement. How much should I be saving each year to end up with $1,000,000 when I retire?' Here you must use your real rate of return to calculate the payments required to reach your goal because you want to achieve the purchasing power of $1,000,000 today at some point in the future.

It is sometimes hard for folks to grasp this concept, but to come up with any real financial plan you must understand and know when to use real rates of return.

2007 Tax Law Changes

2008-01-30T14:23:00.000-05:00

The Consumerist has a good review of the tax law changes that will affect your current return.

Whether you do it yourself or hire a professional to complete your income tax return, you should keep up with these changes.

Kitchen Table Planning -Estimating Your Rate of Return

2008-01-29T16:09:00.001-05:00

Many people do 'kitchen table' financial planning from time to time. They have a goal and make a guess about how much money they will need to pay for it. Next they will assume some rate of return on their capital and off they go, pounding on the calculator keys until they arrive at an answer. I am in fact a fan of 'kitchen table' planning, so I would like to offer some ideas on how to do it better.

I'll start with estimating your rate of return. Here is a method that will give you an idea about what sort of long term return you can expect from a portfolio using the three major assets classes available in the capital markets. Remember it is an estimate not a guarantee, but it is better than just pulling a number out of the air and it also illustrates the relationship between risk and reward.

To use this tool you should know that I am speaking of gross returns, that is returns before the effect of inflation. From 1925 to present the stock markets has produced and average annual return of 10%. Some years are higher, some are lower. Different periods have produced different result but I have more confidence in over eighty years of observations than any shorter period. Bonds have averaged around 5% and cash somewhere around 3%. You can use your own guesses of course but at least this gives you a starting point.

Next you must determine your asset allocation. That's just the fancy word for what percent of your portfolio is invested in each asset class. Just divide each component by the total. Now you can use the form below to estimate your long term return.

For example if you have 70% of your money in stocks, 25% in bonds, and 5 % in cash you would multiply .7 by.1 and put .07 in the contribution column, multiply .25 by .05 and put .0125 in the contribution column, and multiply .05 by .03 and put .0015 in the contribution column. Total the contribution column and you will get an 8.4% expected long term return from this portfolio.

Try changing the allocations to see how risk and reward can affect your expected returns. If you like you can add other asset classes such as real estate and commodities to see how they might affect your expected return.

Have fun.

Minimizing Loss

2008-01-24T13:58:00.000-05:00

With the recent turmoil in the stock, bond, and real estate markets it is a good time to review one of the most important tenets of successful investing; minimizing your losses.

The math of losses works in a funny way. If you lose 10% on your investment, a 10% gain does not make you even. It takes a little over 11% to be even. If you lose 20% it takes a 25% gain just to be even, and if you lose 50% it takes a 100% gain just to get back to even.

That's why you should have a strategy to protect yourself when things inevitably go wrong. 10%-15% gains in the stock market come along fairly frequently, but 25% plus gains are very rare. If you can implement a disciplined strategy to protect yourself from large losses you can be ahead while everyone else is still working to make it back to even.

Free ebooks

2007-12-31T13:33:00.000-05:00

Lulu.com offers writers a place to sell their books online. There are some titles that are offered as free down loads that you can read from your computer, laptop, or ebook reader. You might want to check out the following titles.

Basic Financial Management - Practice of basic financial management with creative learning exercises. Analysis of financial statements, management of short-term cash, funds flow, management of long-term funds, investment of surplus funds etc. with 30 minute audio, all in about a day.

Educating Your Dollars: High Finance for Young Adults - Workbook to teach teens and adults about finances.

It's Not Rocket Science: A Simple Guide to Managing Your Money - A concise guide to personal financial management suitable for the beginning investor.

Emergency! Get Out of Debt Now! - Written by the creator of Frugal101.com, Emergency! Get Out of Debt Now! focuses on getting the desperate college student or young adult out of the debt prison using real, workable strategies.

Wills, Trusts,&Other Fun Stuff - Decisions Your Not Dying to Make - This book presents basic estate planning information on Wills, Revocable Living Trusts, Irrevocable Trusts, Asset Protection, Probate and more.

New LTC Deductibility Levels

2007-12-17T13:09:00.000-05:00

The IRS has set new deductibility limits for long term healthcare policies in 2008. If you itemize deductions you can claim a deduction for LTC premiums up to the following limits.

Age 2008 Deductible Limit

40 or less $310
40-50 $580
50-60 $1,150
60-70 $3,080
70 or older $3,850

Online Help for Letters of Instruction

2007-12-17T12:56:00.000-05:00

Writing a letter of instruction is an estate planning measure I have covered before. Now there are some web based applications that promise to make the job a little easier.

YouDeparted.com. This site isn't about social networking or sending scary messages from the grave. It's about organizing your life so if you die unexpectedly, the important details of your life can be made available to those who really need it. It's about having the ability to update your information in a timely manner as opposed to keeping everything in a safe deposit box or hidden away in a desk drawer somewhere.
PrivateMatters.com. Keep a detailed record of your last wishes and instructions, store email messages for delivery up to a year after your death, and build a lasting memory for someone special.

Giving Odd Lots To a Good Cause

2007-12-14T15:02:00.000-05:00

This months edition of Registered Rep Magazine has an excellent idea for year end tax planning. If you have received odd lots of stock from corporate spin offs, calculating a cost basis can be a real nightmare. The author, Kevin McKinley, suggests gifting those odd lots held more than a year to a charity. You get a deduction for the current market value of the securities if you itemize your return, you eliminate the expense of selling the shares, you eliminate the head ache of calculating the cost basis, and you can help a good cause. Everyone wins. You can read the full article here.

What Will You Do With Your $2,000,000

2007-11-29T11:15:00.000-05:00

In 2006 the Census Bureau reported that the median household income in the United States was $48,201. Assuming you start working at age 25 and retire at 65, that means your lifetime household earnings would be $1,928,000.

So the big question is what will you do with your $2,000,000?

Year End Tax Planning

2007-11-29T10:34:00.001-05:00

With the end of the year approaching now is the time to look for opportunities to save on income taxes. Here are some items you should look for.

Determine whether bunching deductions into 2007 or 2008 will enable you to itemize deductions for at least one of the years.
Maximize the $12,000 per donee annual gift tax exclusion if estate taxes are a concern.
Maximize contributions to retirement plans.
Look to offset any capital gains with any losses you might have, don't forget you can claim an extra $3,000 per year in losses over gains.
Estimate income and deductions year to date. Consider if accelerating or delaying income can reduce your tax bill.
If you are over 70 1/2 and have not taken you required minimum distribution from an IRA, consider making a direct contribution from your IRA to a qualified charity.
Homeowners can claim a credit of up to $500 for energy improvements (limited to $200 for windows) but only if completed before 2008.
The deduction for qualified higher education expenses is set to expire at the end of 2007, so consider making tuition payments early.

Inflation In Your Life

2007-11-17T17:00:00.000-05:00

I have posted about the price of a first class stamp as a proxy for measuring inflation before, but this graph I ran across at Swivel sums it up pretty clearly.

How To Write Your Life Story

2007-11-16T14:27:00.000-05:00

I have posted before about writing your ethical will. It is a way for your loved ones to benefit from the life lessons you have learned when you are no longer around to teach them yourself. Now there is a book available to help you do the job. Ralph Fletcher's book "How to Write Your Life Story" was penned with the goal of helping young people learn to be better writers, but the how-to guide can be helpful no matter what your age. It is available at Amazon.

401k Q & A

2007-10-25T12:04:00.000-04:00

Through my membership in NAPFA, I received a press request from a reporter with MSN. The questions he posed were so good I though it would make a good blog post.

How can a person tell if their employer sponsored defined benefit plan is good?
Wow, a very subjective question. It is hard to make generalizations but the first place to look is the fees charged to participants. Many 401k providers "wrap" administrative and reporting fees into an "asset fee" or "annual maintenance charge" that are billed against the individual participants investments. While this is legal, a "best practice" is for the plan sponsor to pay these fees directly on behalf of the plan. It is a deductible item for the sponsor and allows better returns for the participants by lowering the expenses charged to their tax deferred account. Another area to examine is the total fees paid by participants, which include "asset fees" and the expenses of the investments a participant chooses to use in their account.

If not what can they do to remedy the situation?
Many employers are not aware of their options. The employer has made a financial commitment to their employees by offering the 401k, and they are almost always participants themselves. I am sure they want to offer the best plan they can. A good resource for plan sponsors is www.dol.gov/ebsa/fiduciaryeducation.html. Here sponsors can download booklets and forms to help them evaluate different 401k proposals.

Can you have a Traditional IRA if you have a 401k or 403b plan at work?
Yes, if you meet certain income limits. For single filers with modified adjusted gross income of $52,000 and under for joint filers with income of $83,000 and under if you participate, or income of $156,000 and under if your spouse is the participant, you can make fully deductible contributions. For single filers with MAGI between $52,000 and $62,000 and joint filers with MAGI between $83,000 and $103,000 if you are the participant and between $156,000 and $166,000 if your spouse is the participant you can make partially deductible contributions. Another option is a Roth IRA contribution which you can use if you would qualify for a fully or partially deductible Traditional IRA contribution.

Longevity Insurance

2007-10-17T13:00:00.000-04:00

According to the National Center for Health Statistics a man living in the United States who reaches age 65 has a life expectancy of another 17 years and a woman who reaches sixty five has a life expectancy of 20 years. In fact according to Wikipedia 1 in 50 women and 1 in 200 men living in the United States will attain the ripe young age of 100.

Statistically, life expectancy is the point where 1/2 of a group will be dead and of course the other half will continue living. So half of the women living in the US that are 65 will live to be older than 85, and half of the men will live to be older than 82.

That is a long way to get to where I wanted to start. With expanding longevity in the US, making sure your money lasts longer than you do becomes increasingly harder. Defined benefit pensions are going the way of the dinosaur so individuals have to shoulder an increasing risk of longevity (which I believe is a good problem to have as far as problems go).

Enter your friends from the insurance industry who are willing to sell you longevity insurance.
Some think the policies are over priced but I believe it is an option that some should consider. here's how it works:

Let's say a 65 year old male needs $50,000 a year of income in addition to his social security benefits. Guessing that inflation will average about 3% annually this gentleman will need just over $90,000 to buy the same amount of groceries when he reaches age 85. For about $131,000 he can buy a longevity insurance policy that will guarantee him $90,000 a year in income beginning at age 85. Doesn't sound like too bad of a deal so far, but remember less than half of the men age 65 today are expected to live long enough to collect even one cent (that's right if you die before age 85 you get nothing and the insurance company keeps all the money).
Still if you are one of the lucky ones who lives long enough to collect you'll be ahead after about a year and a half.

If you have reason to believe you'll live a long time this could be a good deal. If like Mickey Mantle you feel "If I had known I was going to live this long I would have taken better care of myself" then maybe it's not for you.

Understanding Your Variable Annuity

2007-10-15T15:48:00.000-04:00

Variable annuities are often confusing and hard to understand. In addition to the fees charged for managing the sub- accounts (read mutual funds) within the policy consumers also pay for the insurance portion of the policy (mortality expense) and various riders and options offered with the policy. If you want to compare the expenses of owning or buying a variable annuity, this months issue of "Money Magazine" offers up a simple grid that you can take to your insurance agent ( yes your broker is an insurance agent if she is offering you an annuity) for help comparing.

E-Z annuity fee disclosure checklist

Before you buy any annuity, ask your advisor to fill in the blanks.

What you pay each year
Annual fee (as % of account value) for:	Number	Typical
The insurance (a.k.a. mortality and expenses)	_____%	1.35%
The investments within the annuity	_____%	0.95%
Riders and options	_____%	0.65%
Total annual fee:	_____%	2.95%

What you pay to get out
Max. surrender charge (as % of withdrawal)	_____%	7%
Number of years before surrender charge expires	_____	8

Source:Morningstar, National Association of Variable Annuities, Money research
Note: Max. surrender charge may not apply to all withdrawals.

You can read the full story here.

Coverdell Education Savings Accounts

2007-09-24T14:48:00.000-04:00

I have written a couple of times about 529 college savings plans. Another alternative is the Coverdell Education Savings Account or ESA. While there are unique advantages to 529 saving plans the Coverdell ESA is a college savings vehicle you should know about.

Coverdell ESA's allow contributions of up to $2,000 per year that while not tax deductible, do grow tax free, and earnings remain tax free for qualified education expenses that include secondary schools (private, religious, etc.). The range of investments is generally larger than that offered by 529 plans which are run by mutual fund companies. Any IRA custodian can also offer Coverdell ESA's and companies like Shwab and Vanguard offer these accounts. With a self directed account you can choose from stocks and bonds in addition to mutual funds, so your portfolio can be managed with greater flexibility.

To make contributions a couple's adjusted gross income must not exceed $220,000, or $110,000 if you are single. To qualify for tax free withdrawals the money must be spent for qualified education expenses before the beneficiary turn 30 years old, however you can change the beneficiary to another family member once per year. The beneficiary must be under age 18 unless the beneficiary is a special needs child. Contributions from all donors cannot exceed the $2,000 per year cap.

With the rising cost of educating our children outstripping the general rate of inflation saving for college becomes more and more imperative. Coverdell ESA's are another account you should consider.

Beloit College Mind Set List

2007-09-13T13:12:00.000-04:00

One of my favorite reads each year is the Beloit College Mind Set List. This list compiled by Tom McBride professor of Humanities and offers a peek into the mindset of each new freshman class. The perspective of todays eighteen year olds (born in 1989) juxtaposed over the perspective of someone much older is sometimes funny, sometimes poignant. The entire list contains 70 items and can be viewed here. My favorites include:

They have never "rolled down" a car window
Rap music has always been mainstream
Russia has always had a multi part political system
Al Gore has always been running for President, or thinking about it
MTV has never featured music videos

Selecting A Corporate Trustee

2007-09-11T15:14:00.001-04:00

A comment on my recent post "Five Questions To Consider When Naming a Trustee" writes, "Your comment about a corporate trustee is interesting, as I am leaning significantly that direction because of a lack of qualified individuals within my personal relations to manage my trust. How would you recommend finding a suitable corporate trustee ?"

Corporate trust services are offered by trust companies, banks, some attorneys, and some financial advisors.

Your first step should be to determine just what services you expect to receive from the trustee. You can choose a trustee to perform the administrative functions only. This could include:

Administration of the trust in accordance with the trust agreement.
Accounting and reporting of income, expenses, and capital gains and losses.
Distribution of income and/or principal to beneficiaries as determined by the trust.
Annual administrative account reviews
Issuance of broad fiduciary guidelines
Filing of annual trust income tax returns.
Providing custodial services and executing transactions.

Using only administrative trust services the beneficiaries or a trusted financial advisor could be entrusted with managing the assets of the trust.

You can also hire a trustee to provide both the administrative and asset management functions.

When you have determined exactly what services you want the trustee to provide you can move to the next phase which is where you should request proposals from several sources. If possible you should meet face to face with a trust officer from each firm you interview. While very intangible the personal touch is a large part of the function of corporate trustees.

Some of the questions you will want to ask include:

What account minimums does the trustee require?
How long have they been in the trust business?
How many trusts do they manage and what is the average size of their trust accounts?
What level of experience does the staff have and how did they acquire that experience?
What is the staff turnover?
Do they have an open architecture or are they limited to proprietary in house investment options?
What conflict of interest might the have?

Of course you will also want to compare investment performance and fees along with the services provided. Location is also a consideration. Will they be accessible to your heirs? And finally, be sure they are really in the trust business, not just going through the motions so they can advertise that they offer trust services.

Stopping Credit Card Offers

2007-09-07T14:24:00.000-04:00

If you are like me you mailbox must contain at least five pounds of mail from credit card offers every week. Gee, I don't know how they know I'm so broke! They come to me, to my wife, to my college age kids. Everyone it seems but the family dog.

If you want to stop the harassment (or stop the temptation) and save a few thousand trees you can call 888-567-8688 or visit www.optoutprescreen.com. The Direct Marketing Association created these avenues to allow consumers to request removal from marketing lists that use information provided by credit reporting agencies.

You student may still be tempted by easy credit offers. My 19 year old told me he filled out an application at school because he got a free meal at some fast food outlet, but at least its a start. It is also a chance to have a conversation with you young adult about the pitfalls and dangers of credit card usage.

Five Questions to Consider When Naming A Trustee

2007-08-27T13:52:00.000-04:00

The responsibilities of a trustee are often complex and time consuming. Managing trust assets often entails familiarity with tax law, real estate markets, security markets, and financial planning. Often it is the oldest or most responsible heir who is given this duty. Here are some things you should consider before deciding on a trustee.

Do you trust this individual? The trustee will need to put your wishes and vision of fairness above any of their own. You must have absolute trust in their integrity.
Is the person willing? You should be sure they have the time to devote to all the many details that can and surely will arise in performing the duties of trustee. If it would be a burden on their family or career let them know it is okay to decline.
Would you let them handle your affairs today? If they are lacking in the knowledge and expertise now, it is doubtful they will be a suitable choice in the future.
Will this choice create ill will among the surviving beneficiaries? The trustee must be able to work through disagreements with and among other beneficiaries. Sometimes family dynamics can make it nearly impossible for the trustee to effectively discharge their duties. Don't make a choice that could lead to ill will among family members.
Is this person willing to accept the legal ramifications of serving as trustee? Most states have laws requiring high standards of performance by trustees. You should discuss the potential liability with any prospective trustee.

If you have a suitable relative or heir you should talk about your choice with your other heirs and beneficiaries. Let them know why and how you made your choice. This could alert you to unforeseen problems and also make sure that everyone is working from the same page.

It could be that after asking yourself these questions you may determine that a corporate trustee would be better for all. The most common reason for not naming a corporate trustee is expenses, but don't be penny wise and pound foolish. The reason you went to the trouble of setting up a trust is to protect your loved ones; a poor choice of trustee could make it all a waste.

Understanding The Credit Crunch

2007-08-27T10:48:00.002-04:00

Everyone has heard about the problems in the credit markets today. With all the press and airtime given to this topic I was surprised by a question from a client recently asking for an explanation. Sadly, while the problem has been discussed widely, the root of the problem has gone unexplained in the popular press.

To understand the credit problem you must first understand a little about how the bond market works. Nearly all bonds are sold out of a dealers inventory, like shirts sold at a department store. The bond dealer buys bonds, marks them up, and then resells them at a profit. Unlike stocks which trade actively everyday on the various exchanges, there are hundreds of thousands of different bond issues, and very few trade on a given day. So unlike stocks where everyone can see the value because the prices are published throughout the day, bonds are valued by using computer models. If you have bonds in your portfolio the value published each month on your statement reflects an estimate of the bonds value on that particular day. If you try to sell a bond, the price you receive could be higher or lower than the estimate your custodian provided on your statement. When dealing with bonds backed by mortgages, current and projected default rates are a factor in estimating the bonds value.

Mortgage backed bonds are created when banks and mortgage brokers pool large groups of mortgages and sell off smaller pieces to institutional and individual investors around the world. Very few mortgages are kept in house by banks, as this would tie up too much of their capital. Your mortgage has probably been sold off in this manner too. Banks and mortgage bankers make their profits from fees charged to originate the mortgage, and from fees received to service those loans. Your personal mortgage is probably part of a large group or tranche of mortgages owned by many different investors.

The current credit crunch probably began on June 20 when Merrill Lynch, a lender to a couple of Bear Stearns hedge funds investing in sub prime mortgages, asked for bids on some of the holdings held as collateral for loans made to the hedge funds. Suddenly, a large block of mortgage backed bonds had to be priced to market rather than priced to (computer) model. With a background of a weak housing market, and adjustable rate mortgages that were resetting at higher rates, the bids Merrill Lynch received from other bond dealers were significantly lower than the models had estimated. Merrill Lynch had issued a margin call, and sold the bonds off in a weak market.

This news caused others to question the value of mortgage backed bonds. Like dominoes, mortgaged backed bonds fell in value as more and more were offered for sale and bond dealers, hesitant to risk their own capital, we reluctant to buy them at any price. Suddenly awash in supply, the demand shrank to nearly nothing. It became like a run on a bank, a self fulfilling prophesy. The run was not contained to the sub prime segment of the market, it cascaded quickly to include any bond backed by any type of mortgage. Even Thornburg Mortgage, a company who specialized in jumbo mortgages, with very low default rates found it impossible to to find financing for its portfolio. The financing required to keep the mortgage market liquid suddenly ground to a halt. The only jumbo loans being issued were those that banks could afford to keep in their inventory, and they came with hefty interest rates.

What has happened to cause this credit crunch began with sub-prime mortgages, but the sub prime segment is not very important to where we are now. The challenge facing the credit markets now is how to restore faith and liquidity to this huge part of our economy. Without mortgage availability the housing market will plunge, taking along with it all the appliance sales, furnishing sales, legal services, etc that are part of this important sector of our economy. Without a housing industry our economy will surely slip into a recession or worse. The cries for an interest rate cut have been loud and often, yet when the federal reserve acted it was with a cut at the discount window not the fed funds rate.

The reason for this could be two fold. The Federal Reserve does not want to be seen as bailing out Wall Street. With the beginnings of this credit crunch so closely tied to predatory lending practices and hedge funds, the public perception is that the problem is contained there and it would be inappropriate for the government to in any way bail out bad business practices. Secondly, the federal reserve may believe that lowering interest rates will not solve the problem. Lower rates can make housing more affordable and even save some unfortunate individuals from foreclosure, but until the root problem of liquidity in mortgage backed securities is solved the specter of a housing collapse is more than just a nightmare scenario.

The stock market seems to be pricing in a rate cut from the Fed. So we are set up for a major disappointment should the fed forgo a cut at its September meeting. Again, this may be what chairman Bernanke wants. He does not want to bail out Wall Street, but if a stock market decline is unavoidable, he certainly wants that decline to be orderly in nature and not a fear driven plunge like we witnessed in the weeks preceding the latest Fed action. The Fed has been injecting liquidity into the banking system on an almost daily basis. More probably should be done. Allowing Fannie Mae and Freddie Mac to purchase mortgage securities over the current $417,000 limit should be a first step. This would allow banks to begin selling jumbo loans from their in- house portfolio and provide further liquidity. Yet, so far the politicians who could make this happen have failed to grasp the true nature of the problem, instead referring to such a move as a bail out.

Update

Your Ethical Will

2007-08-23T14:57:00.000-04:00

When you first think about estate planning it is often only about dollars and cents. Who gets what, how to minimize taxes, how to avoid probate. We often forget that the people we love will be facing one of the most emotionally trying times of their life. Yes you need to take care of the financial aspects of your estate but you should also try to incorporate the emotional needs of your loved ones.

Something you should consider is writing an "ethical will". An ethical will is not a legal document, it is like a final chance to communicate with you loved ones. Ethical wills are a way of sharing some of the wisdom you have accumulated over your lifetime. It can be a short letter to your heirs or a long document that includes things like your family history, a statement of your beliefs, and stories about your life that shaped the way you lived. You can include things like where the money your leaving came from, what it meant to you, and how you would like to see it used. If your children or grandchildren are very young, writing an ethical will can provide a link that can reach through the years.

The hardest part is always where to begin. Some ideas that can get you going might be:

I am most grateful for..
The most important gift I ever received..
My parents taught me..
From my grandparents I learned..
What mattered the most in my life..

Look at an ethical will as an opportunity to connect your life with future generations, it can be a satisfying experience.

Investment Wisdom

2007-08-20T14:54:00.000-04:00

With the stock market in a late summer swoon, I thought some pearls of wisdom on the art of investing might take your mind off the non stop "the sky is falling" gibberish on CNBC. I hope you enjoy these.

If you see a bandwagon its too late. - James Goldsmith
You only see who's swimming naked when the tide goes out. - Warren Buffet
Individuals who cannot master their emotions are ill-suited to the investment process. - Benjamin Graham
The long run is a misleading guide to current affairs. In the long run we are all dead. - John Maynard Keynes
If investing is entertaining, if your having fun, your probably not making any money. Good investing is boring. - George Soros
It's not the bulls and bears your need to avoid - it's the bum steers. - Chuck Hillis
Sometimes your best investments are the ones you don't make. - Donald Trump
I made my money by selling too soon. - Bernard Baruch
We are all wrong so often that it amazes me that we can have any conviction at all over the direction of things to come. but we must. - Jim Cramer
Don't bottom fish - Peter Lynch
I measure what is going on and I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend. - Martin Zweig

Assure Your Property Insurance Claims Accuracy

2007-07-28T14:34:00.001-04:00

Here on the east coast summer is in full swing, and with summer comes the hurricane season. One of the lessons learned from past storms is the need to be able to verify belongings for insurance claims.

Thankfully, the Internet and digital technology can make this job easier. If you have a digital camera and an email account you can take pictures of your home and its contents and store the images online. This protects your documentation in the event your computer is lost to storm damage. Simply take multiple photos of the exterior and interior of your property to create a digital record of your possessions in case you need to file a claim. Then attach the pictures to an email you send to yourself. If your email provider doesn't allow enough storage space for this you can sign up for a free email account with Google or Yahoo and send the pictures there. Now anywhere you can access the Internet you can access the photos to help with any insurance claim needs.

Nursing Home Compare

2007-07-23T09:53:00.000-04:00

You may at some time in your life be involved in selecting a Nursing Home facility for a loved one. The US Department of Health and Human Services Medicare site now has a feature called Nursing Home Care Compare. You can use this site to find and compare nursing homes by state, zip code, county or name. Once you have found nursing homes in your area you can view information on the quality of care provided. Each home is compared to the state and national averages for each category; for example the number of nursing staff hour per resident per day, or the percentage of residents who are physically restrained. Although the grading is measured against negatives and a little confusing (it seems a lower score is better), it is an excellent resource and a good place to start should you ever be in need of nursing home facilities.

Letter of Instruction

2007-07-19T13:45:00.000-04:00

In this months issue of Money Magazine, Jean Chatzky has a good article about writing a letter of instruction to your heirs to help them sort through your affairs should you die. Jean makes the point that often heirs are unaware of where to look to find important documents or whom to contact to find information on your estate. While a letter of instruction is not a legal document, it can help your children or other heirs during a very troubling time. Some of the items Jean suggests for inclusion are:

The location of estate planning documents (wills, trusts etc.)
The location of financial documents (tax returns, deeds, bank statements)
The location of Safe deposit boxes and their keys
Life insurance policies LTC policies
Investment accounts and contact information
Phone numbers for accountants, attorneys, financial and insurance advisors
Funeral home information if you have made arrangements

Some other items that come to mind:

Information and passwords for email accounts
Information and passwords on home security systems
Information and contacts for pensions

While planning for our own deaths is never something we wish to dwell on, making life easier for our heirs is probably a common goal. Maybe looking at it in this light will make this wonderful idea easier to implement.

Credit Freeze

2007-06-26T15:00:00.000-04:00

Beginning July 1 twenty nine states and the District of Columbia will give consumers a new tool to combat identity theft; residents will be allowed to put a "freeze" or block on access to their credit reports. Without access to credit reports and credit scores businesses will not make credit available, thus locking out potential identity thieves. If you put a freeze on your account and need to apply for credit you can input a PIN number to allow access for legitimate inquiries.

You can find a list of the states that are working to protect your identity here. For the rest of us we need to be asking our legislators when we can have access to this useful tool too.

photo courtesy of Belin at mourgefile.com

Some Help From the Web

2007-06-25T09:54:00.000-04:00

The internet is a great place to get work done... if you know where to look. Here are some helpful sites I have come across this month.

Send password protected PDF files from your Mac. Files can be opened but not altered or printed without a password.

How to use Google spreadsheets and docs. Use live lookup to track your investments, work with a remote team on a document with revisions.

Protect your email address from spam bots with this text to ASCII converter. Input you email address then copy and paste the ASCII output to reduce the chances of your email address being found and used by spammers.

Create name tags for meetings and seminars with Big.First.Name.

Selling online or through the classifieds and want to protect your privacy? Use Numbr to generate a temporary phone number.

Choose a credit card wisely. The Federal Reserve Bank can help you understand and compare the features of different credit card offers.

Looking for an alternative to Microsoft Word? A review/directory of alternative word processing programs.

Find other web based applications for home and office use at Simple Spark.

Use expensr to Find Where Your Money Goes

2007-06-13T12:49:00.000-04:00

Ever wonder "where did my money go?" at the end of the month? Expensr is a new free online tool to keep track of your spending. Tracks and graphs your income and spending for the last fourteen months. A couple of minutes a day can help you get a handle on your finances. Sign up for a free account at https://www.expensr.com/.

Delayed Gratification

2007-06-12T10:39:00.000-04:00

According to the Social Security Administration about 50% of retirees claim social security benefits as soon as they become eligible. Yet benefits are reduced from 5.5% to 6.5% for each year you take benefits before your normal retirement age, which is currently between age 65 and 67 depending on your date of birth.

For anyone who is still working it makes little sense to begin collecting benefits early. Working claimants will loose $1 of benefit for every $2 earned above $12,960. In many cases this could wipe out the benefits altogether. So if you continue to work you should think twice about taking benefits at age 62.

Because social security benefits are based on age but ignore gender, and women tend to have longer life expectancies than men, it normally would make sense for females to claim benefits as soon as possible, but again if you plan to work beyond 62 you should carefully examine if delaying benefits will result in higher net income.

At age 70 social security benefits reach their maximum so there is no point in delaying beyond that point. So the real question for those who continue to work is whether to claim benefits between normal retirement and age 70. A good way to judge when to claim benefits is to compare the cost of buying an immediate annuity to provide this same income over a single life expectancy. Insurance companies are great actuaries, so this method can show you the present value of future benefits at various ages. Many web sites can provide immediate quotes for this type of annuity, allowing you to make a comparison of benefits quickly and privately.

Russian Roulette

2007-06-07T13:58:00.001-04:00

Nick Murray is a well known figure inside the investment advisor community. He could be called an advisor's advisor. A prolific writer with a dry style and laser sharp insight his monthly columns in Financial Advisor magazine are greatly anticipated.

This past month Nick chose to discuss concentrated stock positions. He weaves an interesting story about one of the bluest of blue chips, Merk. Noting that over the years Merk has been an excellent investment creating great wealth for shareholders. But then on September 30, 2004 Merk announced that it was withdrawing the blockbuster drug Vioxx from the market. You can remember the story from there. Fear of class action lawsuits and memories of how asbestos decimated the building industry in the 1980s and how silicone implants crippled Dow Corning came flooding to the public consciousness.

Merk opened down 27% the next day and eventually bottomed about 70% off its highs. Nick then coins one of the phrases he is famous for: "You can get rich by under diversifying. But you cannot stay rich by under diversifying."

Wow! what a great way to sum up in a nutshell a lesson that could have saved millions of dollars for the employees of Enron, Cisco, Sears, Xerox, and a host of past Wall Street darlings that eventually fell on hard times. In fact, Nick likens overly concentrated stock holdings to playing Russian roulette with your financial future. You may be okay today, "but tomorrow may be the day when the sun comes up on your Vioxx."

Nick's advise? "Sell every share you have to until that stock is no more than 20% of your net worth...and do it by nightfall."

Is The Forever Stamp A Good Investment?

2007-05-29T20:19:00.000-04:00

Absolutely not. Since 1971, postal rates have increased more slowly than the actual inflation rate, as measured by the Consumer Price Index. In fact, this pattern must hold—as a matter of law. In December, President Bush signed the Postal Accountability and Enhancement Act, which ensures that future price increases will be kept below an inflation-based ceiling. See full story in Slate.

Cash Sweep Swept Under The Rug

2007-05-29T14:53:00.000-04:00

The Securities and Exchange Commission is considering rules requiring more disclosure about the cash sweep choices in investment accounts. The need for more disclosure arises from large brokerage firms forays into banking. In the past cash balances at firms like Merrill Lynch, Morgan Stanley, and Wachovia were automatically swept into money market mutual fund accounts. These money market fund invested in short term treasury and corporate securities and paid out dividends that were very competitive after deducting the funds management fees with were very reasonable, averaging around one tenth of one percent of assets.

All of that began to change when these firms started to buy banks and offer banking services. The firms realized they could offer bank deposits which provided a cheap source of deposits for their banking subsidiaries, pay lower interest rates (sometimes based on the size of your account), and pocket more income from net interest income.

While money market mutual fund sweeps are still available, you have to ask or opt out of the bank deposit defaults. The SEC wants firms to advise investors of this option on a quarterly basis.

If you have an account that is being swept into a bank deposit program you should ask your broker what alternatives his firm offers. If you use a money market mutual fund you will give up FDIC insurance on those deposits, but will probably receive a much higher interest rate. Firms are loath to reveal the options because this is such profitable business for them.

Photo courtesy of cohdra@mourgefile.com

The Shrinking Stock Market

2007-05-18T13:23:00.000-04:00

Many are puzzled buy the recent strength of the US stock markets. Once again it looks like a simple case of supply and demand. In this case, less supply. USA Today reports that the supply of stocks has been shrinking due to the buyout activity of private equity ( read LBO) firms. Astoundingly, the Wilshire 5000 is no longer made up of 5,000 companies it has shrunk to only 4,910! Read the full story here.

Medicaid Rules and Gifts

2007-05-14T15:39:00.000-04:00

With nursing homes care running north of $40,000 per year many families who have a "comfortable retirement" could find themselves facing the prospect of spending down a large chunk of their savings and investments should the need for nursing home care arise. Without long term care insurance some will find their only option may be to apply for Medicaid assistance.

While Medicaid rules vary from state to state, typically a person needing long term care benefits must spend down their assets to $2,000. If there is a surviving spouse they can usually keep the family home (but states can consider home equity in excess of $500,000) , a prepaid burial plan, and between $50,000 and $100,000 in resources.

Medicare rules are separate from and independent of tax rules. You may know that you can gift $12,000 per year to anyone you choose through the tax code, but did you know that a gift you made to your children within a five year period are considered assets that could disqualify you or your spouse for medicaid benefits?

If you or a family member are facing the prospect of nursing home care, and you do not have long term care insurance, you should quickly consult with an Elder care attorney, to help guide you through the complex set of rules for your state Medicaid system. But as they say an ounce of prevention is worth a pound of cure, so the prudent approach is to plan ahead time.

The ABC's of Reverse Mortgages

2007-05-07T11:11:00.000-04:00

Reverse mortgages have been around for a decade but their popularity remains low. The primary reason seems to be home owner's reluctance to take any chance when it comes to their abode. Reverse mortgages are also confusing, complex, and expensive, making them an option of last resort in the minds of homeowners.

How they work.

A reverse mortgage is like a home equity loan with no payback schedule. Instead of having a mortgage you make payments on you have a mortgage that provides income to you. You can choose to take a lump sum payment, a credit line to draw on, or set up a payout schedule much like an annuity. No payments are due as long as you live in your home, however, interest accrues as you access the funds.

Contrary to common perception, the lender doesn't take your home automatically when the loan comes due. Heirs may refinance or sell the home to pay off the balance, life insurance benefits could provide funds to pay off the balance, or the heirs could just use cash to repay the balance if they want to keep the property. If the house is worth less than the amount due, you or your heirs will only owe the lender what the house can sell for.

Costs

Reverse mortgages are expensive. You can expect to pay 6% to 8% of your homes value at the time of loan origination to cover HUD insuring the mortgage, closing costs, and lender fees. Fees are usually rolled into the mortgage so you do not see an out of pocket expense, but it does increase you borrowing costs and decrease the money available for you to access.

For more information see AARP and this item from the Federal Trade Commision.

Why bother with a will?

2007-04-30T10:42:00.000-04:00

In going through some files this past weekend I came across this letter written tongue in cheek to someones heirs. It seems worthy of sharing.

Dear loved Ones,

While I understand that I have the right to determine who gets my property when I die, I have decided to let the fair, just and impartial court system make that decision for me. I have decided this, even though it might mean that people I never knew or liked could wind up as my heirs. I also understand that there are perfectly legal and legitimate ways of minimizing the estate taxes that you will have to pay. However, because of our governments kindness and generosity to me over the years, I have decided to let our beloved Uncle Sam take the biggest share of my assets that he can.

In addition, rather than decide who should take care of my children, I think that I would rather have my family fight about it publicly, and then let the courts go ahead and appoint anyone they like, not necessarily one of you. I would also like you to know that I think lawyers, as a group, are hugely underpaid and under loved, and so they should have a large share of my assets.

Finally, I want all the private details of my financial affairs to become part of the public record, so that anyone who is even remotely interested, for any reason, can simply look it up.

Good luck and much love.

The "new math" of the distribution phase

2007-04-25T13:41:00.000-04:00

American Funds has issued a new white paper discussing the distribution phase of an investment portfolio. It brings to light some interesting points and is well worth the read. To access the report please click here.

Stamps Prices Increase Again This Month

2007-04-05T15:21:00.000-04:00

The US Postal Service has announced yet another increase in the price of a postage stamp. This is old news but I bring it up to illustrate how inflation can erode our buying power. Take a look at the images on the left. In 1976 a first class stamp cost only 20 cents, later this month it will reach 41 cents. That is a little over double the cost in the last 31 years. Some of you may remember all these stamps, for some it will represent a span of time longer than their years on earth. No matter, the point is this period of time represents relatively benign inflation rates. A postage stamp has averaged just a 2.3% inflation rate over this last 31 years yet
your cost of living has doubled. Even small inflation rates can be
devastating over the span of a human life. So what can you do
to protect yourself?

You should understand that real return (gross return after taxes and inflation) is the true measure of your progress. If you are currently earning 5% on a CD or money market account your after inflation return is about 2.5%. If you earn 10% from a stock investment your after inflation return is about 7.5%, about three times the after inflation return of a fixed income investment.

If you are retired and living on a fixed income portfolio you can only spend around 2.5% of your portfolio value each year. The rest has to be reinvested just to keep you even with inflation, or else you should
expect to eat half as much 31 years from now!

Converting your investments from the accumulation phase to the income phase does not mean things get easier, in fact providing a reliable long term income stream from your investments is more challenging than accumulating those assets to begin with.

SC Educational Radio Interview

2007-03-22T14:04:00.000-04:00

This morning I was interviewed by Mike Switzer on The South Carolina Business Review broadcast on the SC Educational Radio Network. We spoke about per stirpes designations for beneficiaries, beneficiary designation forms, the need for durable power of attorney, and transfer on death and pay on death accounts.

I have received calls looking for more information on these topics so I am posting links to the articles that have discussed those topics on this blog. Hope this makes it easier to find.

Per Stirpes
Beneficiary Designation Forms
Durable Power of Attorney
Transfer on Death, Pay on Death

Free Personal Finance Software

2007-03-21T16:58:00.000-04:00

Buddi is a open source cross platform program to help you budget and track bills, investments, and savings. Find out where your money is going and bring some discipline to your finances. To download this java based program you can go here.

Microsoft Small Business Summit

2007-03-16T15:09:00.000-04:00

Microsoft is hosting an online summit for small business. Starting March 19 and continuing until the 23rd you can attend online from your home or office. Featured speakers include Julie Clark founder of Baby Einstein (and introduced during the last state of the union address) on branding, Guy Kawasaki, former Apple Computer marketing Guru on creating new products and services, and Rich and Jeff Sloan host of Start up Nation on how to turn your business dream into reality.
You can get the details and register here.

How Long to Keep Financial Documents

2007-03-08T15:52:00.000-05:00

I get this question a lot so I am really happy to pass along this link to Sound Money Tips on what to keep, what to trash, and when. Just a couple of notes I want to add.

Trade Confirmations should be filed with your tax return records when the position is closed. The only reason to keep them after you've closed a position is if the IRS wants to see them so put them where you can find them if they are asked for.

Brokerage Statements - Keep for one year then shred.

photo courtesy of earl53@morguefile.com

Payroll Deduction Calculator

2007-02-28T16:45:00.000-05:00

PaycheckCity.com has a handy calculator to help you determine the amount of federal and state withholding and the net amount of pay you will receive. If you are overpaying withholding taxes and getting back a big refund this is a good tool to help you find the right level of dependants to claim. If you owe the IRS this year you can use this calculator to make sure you have enough withheld.

Charitable Donations From Your IRA

2007-02-27T13:52:00.000-05:00

If you are over 70 1/2 you know that each year you are required to take money from your IRA whether you need it or not. Good news for those in this group who make charitable contributions - the IRS will allow distributions again in 2007 to be made directly to qualified charities without including the contribution amount in your Adjusted Gross Income.

This could allow more of your itemized deductions that are tied to you AGI to count, like Miscellaneous Expenses (must exceed 2% of AGI) and Medical Expenses (must exceed 7.5% of AGI) or could reduce the taxable amount of your social security benefits.

Bottom line if you must take a required minimum distribution from an IRA and you plan to donate to charity you are probably better off having the donation paid directly from your IRA. As always check with you tax advisor first.

photo courtesy of cohdra@morguefile.com

Tax Refunds For Long Distance Excise Tax

2007-01-31T16:16:00.000-05:00

If you are a heavy user of long distance telephone services you have a chance to recoup the excise taxes you paid on long distance service from March of 2003 to July of 2006 when you file your income taxes this year.

The levy was originally imposed to pay for the Spanish-American War.

Businesses and Self employed individuals with incomes over $25,000 can request a refund based on actual charges (if you have the records) or a formula approved by the IRS. Regardless of the method used to calculate the request, businesses must complete new Form 8913, Credit for Federal Telephone Excise Tax Paid, and attach it to their returns to claim the refund.

For individuals there is a standard deduction of $30 to $60 or they can elect to fill out the form 8913. Either way it is something to be happy about on April 15.

To read more from the IRS and download the form 8913 you can go here.

Save Some Money - Save The World

2007-01-20T21:55:00.000-05:00

Maybe you've seen the TV show "Heroes" and heard the phrase save the cheerleader, save the world. Quite a fantasy. But you can save some money and help save the world at the same time.

I read this post from Seth Godin. It is about compact florescent light bulbs. In his post he stated "If we switched all our bulbs, we could stop importing oil altogether. Without giving up one Hummer." I really thought this was a way over hyped claim. So on a rainy day I searched Google to verify the claims. I found this "According to the Union of Concerned Scientists, if every U.S. household replaced just one regular incandescent light bulb with a compact florescent light bulb, it would prevent 90 billion pounds of greenhouse gas emissions from power plants, the equivalent of taking 7.5 million cars off the road." at about.com. They also provide a link to a calculator that will show how much money and the number of pounds of CO2 emissions you will save by replacing just one bulb.

Not yet satisfied I looked further and found this from the Department of Energy"If you replace 25 percent of your light bulbs with fluorescent, you can save about 50 percent on your lighting bill."

Go ahead do your own research. I just went out and bought some compact florescent bulbs. I used one in the office and I promise I will put one in my home. Please do us all a favor, save some money and save the world.

Health Savings Accounts - New and Improved!

2007-01-16T15:38:00.000-05:00

In the waning days of the republican controlled congress an update to the rules governing Health Savings Accounts passed with little fanfare, but the new legislation can make a big difference in the usefulness of HSAs.

As of January 1, annual HSA contributions of $2,850 for individuals and $5,650 for families are allowed regardless of health insurance policy deductibles (you still must use a high deductible plan), and you now have the ability to transfer assets from an IRA into a HSA.

Why is this such a big deal?

If you are a healthy high wage earner or young self employed individual you could find the savings of a high deductible health insurance policy coupled with tax deductible contributions to a HSA very attractive.

Look at the HSA as another IRA. You can reduce current taxes by making contributions to your HSA and when you do have a need to spend the accumulated balance on health care needs you can withdraw it tax free! This makes it like a blend between a regular IRA and a Roth IRA. Current deductions - future tax free withdrawals.

If you retire early, whether by choice or by corporate downsizing, health insurance expenses can be substantial. Often times it is the overlooked expense that throws a wrench in retirement plans.

The new option of transferring money from your IRA into your HSA can ease the burden of insuring yourself and your spouse in the gap between retirement and your eligibility for Medicare. You can lower the expense of health insurance by using a high deductible plan, and by transferring funds from your IRA to a HSA you convert taxable withdrawals into tax free withdrawals.

Health Savings Plans are not yet widespread but this legislation could help change that.

Resolutions

2006-12-29T15:07:00.000-05:00

Happy New Year!

It is the time of year when many of us start thinking about improving ourselves by making resolutions for the upcoming year. I want to help you get started by tossing our a few ideas.

Resolve to be thankful for what we already have. I am reminded of a Chinese proverb that goes "I make myself wealthy by making my wants few".
Resolve to give something back. If you are reading this you have been blessed with more material wealth than most. I hope to be more aware of the need of those who are less fortunate. Join me in giving some time and resources to help those in need. Volunteer for a charitable organization, write a check, give something back.
Resolve to spend more quality time with those we love. If all our material wealth disappeared tomorrow these are the people who would get us through another day. Kids grow up too fast, Mom and Dad won't always be there, enjoy their company while you can. The moments spent with family and friends are the true treasures of our lives.
Resolve to improve your health. No one enjoys dieting and few enjoy exercise but having our health allows us to enjoy everything else...and we have a better chance of being here to enjoy it all.

There you go. I believe that is enough for me. If you can think of other resolutions I should consider please click on the comment link and post a note for all to see.

Best of 2006

2006-12-12T15:17:00.000-05:00

The Holidays are approaching quickly and a new year is about to greet us. I thought it would be a good time to review some of the posts I hope you read this year.

Long Term Healthcare Insurance.

Maybe you or your children have visited a nursing home this Holiday season to spread some Christmas cheer. Maybe you will visit a relative who is confined to a long term care facility. Here are a couple of articles that deal with protecting your family and your assets from the high cost of Long term healthcare.

Estate Planning

Passing your assets to your heirs with little expense or delay is high on most family's list. Here you can read about Transfer on Death accounts that can avoid the delay of probate. Choosing you heirs and how to protect the heirs of your heirs using the per stirpes designation on IRA, pension plan, and insurance beneficiary forms and how these forms create the Estate Plan for Your IRA, and here we cover naming a trust as a beneficiary for your IRA. Providing for continuity should you become unable to manage your investments or manage your affairs is a must for all of us. Learn about the Durable Power Of Attorney and how it can protect you and your family. Finally, learn why high net worth families should be using a Tax Credit Trust to lower or eliminate their federal estate tax liability.

Saving For College

The Pension Protection Act made the tax free status of qualified distributions from 529 college savings accounts permanent. Here you can learn about the SC Future Scholar 529 College Savings Plan.

Investment Concepts

Some ideas that can help you be a better investor include Reversion To The Mean, Rebalancing Act, and understanding how our behavior and psychology can lead to investment mistakes.

I wish you and your family a safe and joyous Holiday Season and a profitable 2007.

Photograph by Ladyheart at Morguefile.com

Slideshare

2006-12-08T15:44:00.000-05:00

Slideshare is like YouTube for Powerepoint. Some oddities and some helpful ideas - like "How to Tie A Tie".

Legal Forms

2006-12-08T15:29:00.000-05:00

Need a durable power of attorney? A promisory note? A residential or commercial lease?
Legal forms online from Internet Legal Research Group.

A 529 Plan For Your Retirement Years?

2006-11-29T14:18:00.000-05:00

Here is a good story about a unique use of 529 college savings programs. Bottom line, if you are interested in studying at home or abroad when you graduate from your first career, you can use a 529 plan to pay for it!

May be eligible for state tax deduction
Investments grow without taxes and when spent for accredited higher education withdrawn without taxes also
You can name a contingent beneficiary

Check it out here.
Courses here.

Digg This!

2007 Tax Information

2006-11-27T15:18:00.000-05:00

Some important numbers from the IRS for the 2007 tax year.

Standard Deductions

Single - $5,350
Married Filing Joint - $10,700
Head Of Household - $7,850
Married Filing Separately - $5,350
Additional amount if 65 or older - $1,050

Personal exemption - per taxpayer and dependant - $3,400

Tax Rates - Married Filing Jointly

10% on taxable income between $0 and $15,650
15% on taxable income between $15,650 and $63,700 plus $1,565
25% on taxable income between $63,700 and $128,500 plus $8,772.50
28% on taxable income between $128,500 and $198,850 plus $24,972.50
33% on taxable income between $198,850 and $349,700 plus $43,830.50
35% on taxable income over $349,700 plus $94,601

Tax Rates - Single

10% on taxable income between $0 and $7,825
15% on taxable income between $7,825 and $31,850 plus $782.50
25% on taxable income between $31,850 and $77,100 plus $4,386.25
28% on taxable income between $77,100 and $160,850 plus $15,698.75
33% on taxable income between $160,850 and 349,700 plus $39,148.75
35% on taxable income over $349,700 plus $101,469.25

technorati tags:Finance, Tax Rates, 2007 Information

Thanksgiving

2006-11-20T12:15:00.000-05:00

It is Thanksgiving, a time to join with family and enjoy the bounty of our harvest. We have all been blessed with many riches. Enjoy your holiday with friends and family - our true wealth in life.

photo couresy of taliesin@morguefile.com