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Sunday, June 16, 2019

Social Security is in Trouble

This is a solid, proven myth.  The only trouble Social Security is in is the same trouble it's been in since before it was signed into law 84 years ago:  ignorant, malicious attacks by self-righteous ideologues.

As quoted in Social Security Works: 
The most important takeaways from the 2019 Trustees Report are that (1) Social Security has a large accumulated surplus, and (2) Social Security is extremely affordable. In three-quarters of a century, in 2095, Social Security will constitute just 6.07 percent of GDP. That is considerably lower, as a percentage of GDP, than Germany, Austria, France, and most other industrialized countries spend on their counterpart programs today.
The 2019 Trustees Report projects Social Security’s cumulative surplus to be $2.9 trillion. It shows that Social Security is fully funded until 2035, 93 percent funded for the next 25 years, 87 percent funded over the next 50 years, and 84 percent funded over the next 75 years.
Yet, like a malignancy, a thoroughly inaccurate New York Times article spread until one newspaper headline said Social Security would be insolvent in 6 months.

Your Constructive Comments are Welcome!

Monday, May 13, 2019

Top Three Influencers of Fiduciary Advice- not a myth

I've always believed a universal fiduciary standard should exist for anyone who gives advice to others that can affect- and ruin -lives, whether it's journalists, bankers, stock brokers, teachers or wedding planners.  I don't know why the fiduciary focus is strictly on finances.  If you hold yourself out as an expert, you'd better not be faking it until you make it or, worse, have self serving or even malicious intent.
I want to pass on this 2 1/2 year old article by Shelby George, written when a universal financial fiduciary standard looked like a sure thing.  Turns out Wall Street succeeded in killing it (Great PR move, Wall Street, fighting an initiative that puts your customers first).
I also want to emphasize this key phrase in her article, "The Fiduciary Rule puts a specific emphasis on the damage done by investor behaviors" whether self or advisor induced.  It would have helped protect investors not only from inexperienced or dishonest advisors, it would have helped protect them from themselves!  Virtually all of the big ripoffs of investors are catalyzed by investor greed, carelessness, unrealistic expectations and trusting without verifying.  Even with a universal, well-enforced fiduciary standard, investors still need to do their due diligence by verifying the credentials and recommendations of their advisors.

3 Influencers Driving Today’s Fiduciary Best Practices

November 21, 2016 | Fiduciary
Senior Vice President, Advisor Services
As the Department of Labor (DOL) has redefined “investment advice,” they have undoubtedly accelerated the evolution of what it means to be a fiduciary. Regulators are but one of the three key influencers shaping best practices for new fiduciaries. Financial institutions are working aggressively to comply with the DOL’s new rule; however, advisors can take actionable steps today to better identify the needs and best interests of retirement plan participants and IRA holders.

Influencer 1 – The Markets

The markets are an often overlooked key influencer. The current slow growth, low interest rate, long-term economic outlook creates new challenges for savers that were not a concern for the last generation of retirees. Fortunately, there has been an increased focus on savings as study after study finds that we need to save more for retirement than in previous years. Unfortunately, savings is only a part of the solution.
The Fiduciary Rule puts a specific emphasis on the damage done by investor behaviors and encourages new fiduciaries to pay particular attention to each investor’s unique risk tolerances and reactions to the markets as well as the investor’s long-term savings goals. In today’s market, where volatility is a “new normal,” it becomes critical for fiduciaries to frame investment due diligence and portfolio performance around the investor’s objectives rather than a hypothetical benchmark.

Influencer 2 – The Regulators

In the DOL’s own words1, the new rule will, “mitigate adviser conflicts and thereby improve plan and IRA investment results, while avoiding greater than necessary disruption of existing business practices.” However, certain compensation arrangements are viewed with heightened skepticism. In particular, the DOL application of ERISA’s self dealing prohibited transaction to all ERISA plans and IRA accounts will cause significant disruption to traditional brokerage models.
As the DOL encourages more level, transparent fee structures, fiduciaries must shift their focus to offering a service rather than selling an investment product. The value of the fiduciary’s services is based on the need of the investor.

Influencer 3 – The Litigators

ERISA class action litigation dates back to 1998 as an outgrowth of securities and class actions. Since that time, the volume and scope of the litigation has ballooned, especially when the stock market drops.
Recent 401(k) litigation demonstrates that no fiduciary decision is insignificant. IRA advisors are paying increasing attention to recent 401(k) fee litigation because of the DOL’s Best Interest Contract Exemption and the possibility of class action lawsuits.
With the new DOL Rule, advisors need to view each plan decision independently and have a repeatable and documented process for each. All processes should be designed to identify the needs of plan participants or the IRA holder and then make a recommendation based on that need. Each step of the process and the resulting recommendation should be documented with reasons given as to why the decision is in the best interest of the client.
To learn more about the three key influencers shaping fiduciary best practices and more on the DOL’s Fiduciary Rule, visit www.manning-napier.com/EvolutionaryFiduciary.
1Source: Federal Register. Department of Labor. Rules and Regulations. Volume 81, no. 68, p. 20952.
 
Your Constructive Comments are Welcome!

Monday, April 22, 2019

Social Security Trust Fund Set to go Bust by 2035.

Yes, this is a solid, ridiculous myth.  Don't step in it.  I feel sorry for Melanie Waddell, the ThinkAdvisor writer, that her editor capped an otherwise laudable article this way.  Here is her original piece.

The Social Security program’s reserves will be depleted in 2035, with continuing income to the combined trust funds being sufficient to pay 80% of scheduled benefits, the board of trustees predicted in its annual report, released Monday.
The old age and survivor insurance trust fund reserves are projected to be depleted in 2034, at which time OASI income would be sufficient to pay 77% of OASI scheduled benefits, the report states.
The disability income trust fund’s asset reserves are projected to become depleted in 2052, at which time continuing income to the DI Trust Fund would be sufficient to pay 91% of DI scheduled benefits.
“The report shows the depletion of the combined funds is one year later than projected last year — 2034, last year, and 2035, this year,” Nancy Altman, president of Social Security Works, a group that supports expanding the Social Security system, told ThinkAdvisor in an email message. “That kind of variation is not surprising when projecting out so far into the future.”
The 2019 Trustees Report projects Social Security’s cumulative surplus to be $2.9 trillion, according to Social Security Works. The report shows that Social Security is fully funded until 2035, 93% funded for the next 25 years, 87% funded over the next 50 years, and 84% funded over the next 75 years, the group said.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, added in a Monday statement that the report shows Social Security “faces a nearly $15 trillion funding shortfall and will face insolvency in only 16 years. That’s when today’s 51-year-olds reach the normal retirement age and when today’s youngest retirees turn 78. At that point, if not addressed, the law calls for a devastating 20% across-the-board cut for all Americans who rely on the program.”
Medicare’s Hospital Insurance trust fund will run out even sooner in 2026, when today’s 58-year-olds become eligible and today’s newest beneficiaries turn 72, MacGuineas said.
“The 2019 Social Security Trustees Report confirms that Social Security remains fully affordable, notwithstanding its modest projected shortfall,” Altman said. “The underreported story is that Democrats are moving forward with plans to raise sufficient revenue to eliminate the shortfall and cover the cost of expanded benefits.”
The Social Security 2100 Act, introduced by Rep. John Larson, D-Conn., “has over 200 co-sponsors” in the House, Altman said. “Larson has held several hearings on the bill and intends to bring it to the House floor this spring.”
While the combined basis is the way everyone tends to look at the trust funds, “by law, if either fund is unable to cover all the costs of its benefits and related administrative costs, it would be unable to pay full benefits on time,” Altman explains, but that “has never happened.”
The Social Security 2100 Act, “which expands benefits, has a provision combining the two trust funds so that reality comports with how we all refer to them,” Altman said.
The bill would gradually raise the payroll tax from 12.4% to 14.8% over the next 24 years and subject annual income above $400,000 to the tax. It would also raise the minimum benefit to 25% above the poverty line, link cost-of-living adjustments to the Consumer Price Index for the Elderly and eliminate the taxation of Social Security benefits for those with non-Social Security income above $50,000 for singles and $100,000 for couples, up from $25,000 and $32,000 currently.
Several other bills to protect and expand Social Security benefits have been introduced in the House and Senate, and nearly every 2020 presidential candidate serving in Congress is a member of the bicameral Expand Social Security Caucus, Altman said.
MacGuineas added that That fact that we now can’t guarantee full benefits to current retirees is completely unacceptable, and it should be cause enough for every policymaker to rally around solutions to restore solvency to those programs. Certainly we should be focused on saving Social Security and Medicare before we start promising to expand these programs.
Rep. Kevin Brady, R-Texas, the top Republican on the House Ways and Means Committee, said in a Monday statement that “Social Security reform only has a fair chance of succeeding if it is done with Republicans and Democrats working together. Today’s Trustees Report is an important reminder that the time to act is now.”
Republicans at a recent hearing on Social Security opposed payroll tax increases but appeared open to reducing benefits or making changes to account for longer life spans.
Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, added in a statement that “This year’s Trustees report shows that, contrary to conservative propaganda, Social Security is not ‘going bankrupt’ or ‘in peril.’”
The system’s financial health “has improved over last year, and Congress now has before it two landmark pieces of legislation that could put Social Security on a sound financial footing for the rest of the century — and provide seniors a modest benefit boost and tax relief,” he said, adding that he “enthusiastically” endorses the Social Security 2100 Act and Sen. Bernie Sanders’ Social Security Expansion Act.
“Both bills ask the wealthy to pay their fair share to strengthen Social Security, something overwhelming majorities of the American people support in poll after poll,” Richtman said.
The trustees of the Medicare program report that the federal senior health care program’s finances look about the same as they did in 2018, he added.
“Medicare’s Part A trust fund will become depleted in 2026, at which time the system still could pay 89% of benefits,” Richtman said. “But, again, this is only if Congress takes no action to bolster Medicare’s finances.”

Your Constructive Comments are Welcome!

Friday, April 12, 2019

Why Annuities are a Bad Idea for almost Everyone!

This headline precedes an extremely ignorant article by MarketWatch writer Marc Lichtenfield.  Ironically, only the first sentence is close to being true:  "You're betting the insurance company that you're going to live longer than they think you will".  Yes, of course!

But let me dissect this dangerouly stupid article line by line.  As if Wall Street is so great at comprehensive financial planning.  The truth is,

Annuities are a Great Solution for almost Everyone.


Opinion: Why annuities are a bad idea for almost everyone

Published: Aug 18, 2018 7:56 a.m. ET

“Don’t lose money in the Wall Street casino!” the radio announcer blared.
“It could take a lifetime to make up your losses in the stock market.”
Unless your lifetime is five years — that’s how long it took the market to make a full recovery after the Great Recession — he’s dead wrong.
He was using this fear tactic to sell annuities. And getting suckered into buying an annuity with him — or any broker — could be the biggest mistake you ever make.
Marc, since the number one risk in retirement is living longer than expected and, hence, outliving one's income and assets, wouldn't income insurance make sense?  Yes, the market made a full recovery . . . as long as no withdrawals were being made.
You see, annuities aren’t wrong for everyone… Just most everyone.
I would love to do a comprehensive plan comparison, your way and my way.  Just ask any retiree how important their existing public annuities (Social Security and pensions) are to them.
If you’re unfamiliar with annuities — you give an insurance company your money and in return they pay you an income stream, usually for the rest of your life. In some annuities, if you die before you’ve received all of your money back, too bad for you. The insurance company keeps the money.
Seriously, that’s how it works.
No, that's not how it works.  Some annuities (single premium immediate annuities or SPIAs) do work that way, just like pensions and Social Security, unless you exercise survivorship and/or spousal continuation options, in which case payments can continue for the life of one's spouse.  But they are neither the most effective nor common.
Now, there are plenty of annuities where that’s not the case. Family members can receive cash back or even continued monthly income after your death — but you pay extra for that.
Now you just contradicted your last paragraph.  Oh, there are other types of annuities.  And no,  those particular benefits don't cost extra.
Essentially, you’re betting the insurance company that you’re going to live longer than they think you will. They take your money, invest it and give it back to you in dribs and drabs (with steep penalties if you want to withdraw more than the contract states).
Annuities are indeed long term vehicles which still have great short term liquidity.  10% per year penalty-free is ubiquitous.  After 5-10 years you have 100% liquidity.  Upon death, terminal illness or disability, even the short term penalties are waived.  Everyone has money that they don't need 100% liquid all the time.  Tell any annuitant that the guaranteed income they're enjoying is "dribs and drabs".  I'm not familiar with that sophisticated financial term.
Annuities are such terrible investments that the minute the government passed a law specifying that financial professionals had to act in their clients best interest, annuity sales fell off a cliff.
In 2016, new rules were passed by the Department of Labor that stated that brokers have to act as fiduciaries. That means they had to put their clients’ best interest ahead of their own.
Believe it or not, prior to the rule being passed, stock and insurance brokers could sell you anything they wanted — whether it was right for your or not. So typically, they sold whatever paid the highest commissions.
Fixed and indexed annuities are not investments.  They are insurance products.  They are regulated by state insurance departments.  Variable annuities are indeed terrible, expensive and poorly regulated investments.  The best interest statutes never stuck.  What killed sales was the requirement that all compensation, even trips, etc. be disclosed to the client.  Those of us advisors who are already legal fiduciaries comply with the best interest standard anyway, even though it was eventually thrown out.  
Annuities pay extremely high commissions — often 7% or higher of the total amount. So if a client was sold a $200,000 annuity, the salesperson might take home $14,000 up front.
Needless to say, there’s not a lot of incentive for him to put you in a low-cost index fund.
Yes, the far more virtuous stock broker or money "manager" would rather you pay 1-2% of your money every year, indefinitely.  Annuities actually pay less compensation over a 10-yr. period.  Finally, I do in fact recommend low cost ETFs for the growth portion of my clients' assets.
This new law is scheduled to go into effect this year, though that will likely be delayed.
As soon as the fiduciary rule was passed in 2016, sales of annuities fell 8%. They slid an additional 18% in the first quarter of 2017.
Sales of variable annuities, which are the worst of the worst, crashed 22% in 2016.
If these were such wonderful products, as defenders of annuities will maintain, why did so many people stop selling them — even before the law went into effect?
Those were my two best years, due to the uncertainty caused by our current awful president.  Keep in mind, too, that everyone thought they were invulnerable in the market.  Stodgy old annuities weren't as sexy.
So why do people like them?
Fixed annuities prevent losses. You are typically guaranteed that the value of your principal will not go down regardless of what the stock or bond markets do.
Fixed index annuities allow the investor to take part in some upside, though it is usually very limited — about 4% per year in this low interest rate environment. So the investor is trading upside potential for downside protection.
If the market soars 20%, the investor will only make 4%. But if the market falls 20%, the investor won’t lose any money.
More top-of-the-head opinionating without doing any research.  I had indexed annuities credit close to 20% last year.  Virtually all indexed annuities offer monthly caps of 1-1.5%, meaning you could earn 12-18% any given year.  But this misses the point.  The primary purposes of indexed annuities are income insurance & principal protection that beats other principal insured options like CDs and bank accounts.
Another way they screw you
Let’s say you take out an annuity and your circumstances change. You need the money urgently. If you’re still within the surrender period, it’s going to cost you. Big.
A typical surrender period is seven years and the surrender charge starts at 7% and falls by 1% per year.
So if after two years, you need your money back, it’s going to cost you $10,000 ($200,000 x 5% = $10,000) to get your own money back.
 This is why fiduciary advisers build income plans to prevent having to access long term money.  That's what emergency funds are for.  Wall Street shills don't seem to be able to grasp this.
Instead, take the money and invest it in Perpetual Dividend Raisers — companies that raise their dividend every year.
Yes, they did so well in 2008.  Investors spending down such account allocations would never have recovered.  This is referred to as "sequence" risk, losing money at the wrong time while you're drawing down savings.  Wall Street shills don't seem to understand sequence risk either.
But I don’t want to risk any money, you say. After all, that’s one of the most attractive features of annuities.
Annuities are typically long-term contracts. People buy them in their 60s, 70s and even 80s, expecting to collect income for years in the future.
And most do indeed collect income for years in the future, usually well beyond the "average" life expectancy used by brokers in their plans, if they've even done a plan.
Consider that over 10-year periods, the stock market has only been down seven times in the past 80 years. And those seven times all were tied to the Great Depression or Great Recession.
In other words, you had to sell in the depths of historic financial collapses to not make money in the stock market over 10 years.
Again, this ignores sequence risk.
If you invested in 2000, near the top of the dot-com bubble and sold in 2009, near the bottom of the Great Recession, you were down 9%. Not good, but not horrendous considering you endured two epic stock market meltdowns.
But what if you were having to meet your budget during that period?
Or consider this scenario… If you have the worst timing of any investor and put your nest egg into the S&P 500 SPX, +0.62%   at the absolute top in 2007 — right before the financial collapse — you’d be up 91% (including dividends) 10 years later.
Just stop and think about that the next time market naysayers talk about the “Wall Street casino.”
Securities are indeed a casino.  Where else can you lose everything?
As an industry saying goes, “Annuities are sold, not bought.”
Don’t be one of the people who gets sold.
Actually, I disagree heartily.  Annuities are bought.  By people who want principal protection, and a solution to the three greatest retirement risks:  Sequence risk- having to spend your money after or while it shrinks, Longevity risk- outliving your income, and Withdrawal Rate risk- e.g following Wall Street's 4% rule and then going broke.
A well designed income allocation plan includes market investments.  But no one should have all their money in the market, not in a well-crafted income allocation strategy.


Your Constructive Comments are Welcome!

Wednesday, March 20, 2019

Complaints Soar About Equity Indexed Annuities

This is, of course, another false statement, a blazing myth.  In a recent study by the National Association of Insurance Commissioners (the enforcers of insurance regulations), the complaint ratio about fixed indexed annuities (EIAs) was 0.039%.  That's about one-third of a tenth of a percent.*
This is because
  • retirees can see the handwriting on the wall, that we're long overdue for a recession, 
  • they don't want to lose decades of savings- again -
  • but also don't want to miss out on gains if they continue to occur.  And finally, 
  • there is no other way to get as much guaranteed lifetime income from a fixed amount of principal should they miscalculate their longevity.

Your Constructive Comments are Welcome!

*https://eapps.naic.org/cis/

Wednesday, December 19, 2018

There Qughta Be a Law (repost)

I'm reposting this financial mostly-a-myth because of the recently and rapidly growing list of "mistakes" made by our president and virtually every one of his inner circle.

I confess that my first reaction to outrageous behavior is, "there oughta' be a law!".   One way I attempt to keep up with the times is to watch TV about once a week, usually a news program on Sunday morning.  Holy cow!  A dozen "there oughta' be a law!" incidents come up in 15 minutes (so far, my upper tolerance limit), most having to do with advertising:

  • Gambling is portrayed as entertainment, showing idiotically grinning couples.  I've never seen people smiling in a casino, have you?  There oughta' be a law against these ads.
  • Drugs are also paired with happy, healthy actors who, in reality, will probably never need a prescription in their lifetimes.  Drug ads should be illegal.
  • Fashion is advertised as an essential source of happiness, acceptance and, well, evolving as humans!  A top fashion consultant admitted that he doesn't follow consumers' fashion desires, he manufactures them.  There oughta' be a law.  (But in my case it's obvious I don't follow fashion.)
  • Food.  If you just look around it's apparent that Americans get plenty of food.  Yet billions are spent daily trying to get us to eat cheap, crappy "food".  Or food that neither our budgets nor our bodies can afford.  This should be illegal, just like hard liquor ads are.
  • Cars are a personal statement, instant evocations of status and coolness.  Oh.  And they can transport things and people.  But we need fewer of them, not more of them.  How are these ads any different than hard liquor, gambling, drugs or food?
  • Investing "porn" is everywhere.  Really?  You're going to plan out the rest of your life based on information from whoever spends the most money to catch your eye??  Where do they get all that money to spend on ads?  From your money.  There are rational, evidence-based rules & tools you can find online, most for free.  Finally, there are honest, wise and experienced advisers in your community to help you curate the deluge of money madness.  Investing & insurance ads should be illegal. 

But then, several weeks after our Nuevo Vallarta vacation, it dawned on me what had been different- and profoundly relaxing -about Mexico.  At the resort, what was it about the pool area, the weight room, the parking lot . . . everywhere that was so calming?  What was absent?  Then I realized there were No signs, no rules, no "Danger" or "Forbidden" or "Warning" placards at every turn.  It felt clean, quiet, uncluttered, adult.  They relied on the intelligence and character of their guests to make things run smoothly and so far it seemed to be working.

Wouldn't it be easier, less expensive and more effective to encourage consumers* to be smarter and more discerning ?  That's a transferrable skill.  It would make us all better citizens, parents, workers, entreprenuers and, yes, consumers.  Absolutely there should still be laws and enforcement of them.  But the path to perfect safety is more perilous and ultimately results in zero freedom under dictators.  Which is why our current administration wants to entice you down that path to make you dumber, more fearful and less tolerant, hence, easier to manipulate and control.

*And, in the vein of today's post, voters

Your Constructive Comments are Welcome!

Sunday, December 9, 2018

Straight-A Students Always Succeed in Life

Well, like practically any sentence with "always" in it, this is also a myth.
According to organizational psychologist Adam Grant, "If you succeed in school, you're not setting yourself up for success in life . . . academic excellence is not a strong predictor of career excellence"
Personally, I like this premise because I was a mediocre student during my K-12 years and, what is more, I didn't care either.  I agree with Grant that academic grades rarely measure qualities like creativity, leadership, teamwork skills, social/emotional/political intelligence.  He sums it up brilliantly, " . .career success is rarely about finding the right solution to a problem, it's more about finding the right problem to solve.
"This might explain why Steve Jobs finished high school with a 2.65 G.P.A., J.K. Rowling graduated from the University of Exeter with roughly a C average, and the Rev. Dr. Martin Luther King Jr. got only one A in his four years at Morehouse."


Your Constructive Comments are Welcome!

Tuesday, November 27, 2018

Families are Penalized by the new Tax Laws

This is a solid myth.  If you have children there is a substantial gift tucked into the Tax Cuts and Jobs Act of 2017, despite the record-breaking deficits and debt it is already creating.  Here are the details, straight from IRS.
  • Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility for the credit has not changed. As in past years, the credit applies if all of these apply:
    • the child is younger than 17 at the end of the tax year, December 31, 2018
    • the taxpayer claims the child as a dependent
    • the child lives with the taxpayer for at least six months of the year

  • Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their refund.

  • Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.

  • Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.

Your Constructive Comments are Welcome!

Wednesday, October 17, 2018

You Get What You Pay For With Asset Management Fees

Well this is a solid myth.
At Fidelity's Inside Track conference in New York City this week, Ron Carson (of $10 bil. asset firm Carson Group) admitted as much by stating the assets under management (AUM) business is only worth 0.2%.  That is, if you have $1.0 mil. being "managed" by an adviser, you should be paying only $2000/yr for the privilege.  I come across people every week who are still paying 2.0%,  ten times 0.2%, or $20,000/yr on a million account per year.  The current average AUM fee is 1.22%, still more than six times what the advice is worth.


Your Constructive Comments are Welcome!

Wednesday, July 25, 2018

It Is Possible To Get "Neutral" Advice

In their 10-year-old easy-to-read book, "Nudge, Improving Decisions About Health, Wealth and Happiness", Nobel Prize winner Richard Thaler and Cass Sunstein describe "choice architects" (of which I am one) and the drivers behind their recommendations.
But before I give those details, in my substantial experience part of the impossibility of giving "neutral" advice is that there are no neutral clients.  If everyone I met with was fully informed, unbiased, realistic about the future and open to the best available evidence then indeed it might be possible to get close to providing neutral advice.
For example, I have taught many many classes on Social Security Optimization (the largest asset most retirees own) and Retirement Income Planning .  I collect evaluation forms after each class but before handing them out I practically beg for frank criticism, for contructive suggestions on how to improve the class.  Here are typical results:
  1. "The handout was too big" vs.  "You should have all the slides in the handout"
  2.  "Not enough specific examples" vs. "Too complicated"
  3.  "Felt like a pitch to buy annuities" [It is!  Absolutely!] vs. "More information about annuities"
  4. "Too long" vs. "Class needs to be longer".
  5. "Too basic" vs. "Too many terms I didn't understand".
  6. "very concise & well organized!" vs. "needs to be better organized".
And so on.  The classes are very carefully tailored and presented to convey maximum value to the largest number of attendees.  It still amazes me that people expect it to be perfect just for them. Because I diligently explain multiple times that the information is generic, may not apply to everyone, and that is why the free one-hour private strategy session is offered as part of the class.

For a minute, though, I want to talk about #3 above, specifically the annuity skeptics.  During class I can see their faces set as soon as the word "annuity" is mentioned.  A smug knowing expression descends.  It's not their fault.  They've been brainwashed by financial celebities whose self-promotion appears more important than providing evidence-based advice.  The one tried and true tactic (writ large by our current president) is to find things, for the people you're trying to manipulate, to hate.  This makes them feel like they're part of your tribe and you are protecting them.

Here's how that skepticism looks to me.  Since the #1 risk in retirement is outliving your money I feel like I have a gas station and these folks have pulled into my station unsure whether they have enough fuel in their vehicles to make it to their destinations.  I'm promoting fuel*.  They've heard gasoline is bad (well, gasoline is bad but I have yet to come up with a better simile).  Despite all the evidence, they cling to this myth even though they already have similar fuel in their vehicles that is working well (Social Security, pensions, muni bonds, dividends etc).  Nor do they have any better alternatives for extending the range of their vehicleIs this much different than growing up learning that skin color means something?

I follow the best evidence I can find.  I recommend that if you're 65, for example, ask your broker this, "If I give you $100,000 can you guarantee that in 10 years I'll be able to withdraw $10,000/yr for the rest of my life?"  There's no way to do it without annuities.

*in addition to checking the oil, tire pressure, fluid levels, warning lights, the vehicle's specifications to be sure the correct products are used, etc.

Your Constructive Comments are Welcome!

Tuesday, June 19, 2018

Not a myth this time: Did you buy Woodbridge notes?

 About 2-3 years ago I was pitched a very secure-sounding real estate play by Woodbridge.  It quacked like a securities duck, though, so I checked with the Oregon Dept. of Finance and Corporate Securities (now the Division of Financial Regulation)  to see if it was registered for sale here.  Nope.  So I sent them all the sales materials I had received and wrote it off as a scam.
Lo & behold, now Woodbridge is in Ch.11 bankruptcy & owes noteholders $750 mil.  So much for "secure-sounding".

Before moving money anywhere, be sure to check that the "anywhere" is at least approved by the appropriate regulatory authorities.  And insist on evidence that the recommendation is better than what you have now.  I do.

Your Constructive Comments are Welcome!

Monday, March 5, 2018

Your Eyes Reveal Whether You are Lying or Telling the Truth

 This myth is still being bandied about by "experts" in fields from management to law enforcement.  The myth is that if a right-handed person looks up and to the right while speaking then they are lying.  To the left, they are telling the truth.  This scientifically controlled study, however, showed no relationship between lying and eye movement.  Further, interviewers coached in this right/left theory were no better in detecting lies.  The best indicator was "excessive" hand movement. 
But even then, how would you know what normal hand movement is for the particular person in front of you?  Some people gesture a lot, some don't.  Does that mean people who dramatically gesture are lying all the time?  Of course not.
http://www.independent.co.uk/news/science/the-truth-about-lying-its-the-hands-that-betray-you-not-the-eyes-7936522.html
Lucky for me, when I'm searching my brain for a fact or figure while I'm talking, for some reason I glance up to the left.  It just feels like there's more there than on the other side (or I like to kid myself, anyway)  And I'm right-handed.  Since all of this is public knowledge, then anyone intent on getting away with lying could just change the cues they give you.  Even lie detector tests can be defeated.  The only reliable test is to verify, verify, verify.

Your Constructive Comments are Welcome!

Thursday, March 1, 2018

It's Impossible to Find Socially Responsible Companies

This is absolutely not true, as Sustainalytics demonstrates in this article that appeared in ThinkAdvisor magazine.  Socially responsible investing (SRI) has evolved into ESG investing which is more relevant, I think.  ESG stands for Environmental, Social and Governance (that is, corporate governance).  An ESG screen is proven to reduce future volatility.
https://www.thinkadvisor.com/2018/02/26/use-these-10-esg-factors-to-avoid-riskiest-investm

(this link works for me but let me know if it doesn't for you)
Your Constructive Comments are Welcome!

Friday, February 23, 2018

IT IS EASY AND SIMPLE TO EVALUATE ADVISERS AND THE FINANCIAL STEPS THEY RECOMMEND

I must confess at the outset to a bone-deep weariness of this pervasive myth.  It is dangerous.  It is ignorant.  It is inaccurate.  And, more importantly, it is self-destructive to the average investor. 
This myth compares quite aptly to racism and sexism, which are uneducated snap judgements of others based on sheer irrelevancies such as skin color and gender.  In the deep South a woman about to give birth may refuse the services of a black OB/GYN even though he is the best in town and even though his skin color is less relevant than the color of his shoes (it's easier to tell if white shoes are clean or dirty).  A brilliant marketing director may be passed over for a promotion simply because she is a woman in a good ole boy corporate network, to the detriment of the company.
I frequently am asked, "Do you sell [financial] products?" as if this is some magic passphrase to, in one fell swoop, assess my skill & virtue.  My answer is, "Of course I do.  All of them.  It is the only way to keep up on current innovations and features.  A great deal in the financial universe is not shared with the public nor is it shared in a timely manner.  I am beholden to no specific company or product or even type of product."  But somewhere the questioner read or heard that anyone who sells financial products is biased.  And it is true.  However, we are biased in favor of holistic plan construction and implementation.  What would you think if you invited a plumber to your house to put in a water heater and he brought no tools? Or water heater?
So I'm going to look at the various "adviser" types and show you that none are free of bias and conflict of interest.  None.  Keep in mind that most are genuinely honest, hardworking, highly educated and primarily concerned about improving your situation.
Fee-Only Advisers-  Well, "fee-only" can include % fees for assets under management (AUM) which, in my opinion, are really commissions.  The theory has been that as you do better your adviser does better.  But the converse is not true:  If you lose money, your adviser still does well.  Plus, the evidence is in that very few "managers" beat their unmanaged benchmarks.  None do it year after year.
Flat/Hourly Fee-Only Advisers-  The conflicts here should be obvious.  If you are paying a flat fee for a comprehensive plan and it turns out to be more work than the adviser expected then he may rush to finish.  Or not finish at all.  Conversely, there is great incentive for an hourly adviser to drag his feet and stretch out the engagement far longer than necessary.  I'm not saying this is common practice.  Not at all.  But it is a conflict of interest where the adviser's self-interest could subvert your best interests.
Commission Only Advisers- These could be life insurance agents, annuity agents, stock & mutual fund commissioned brokers and AUM brokers.  First the positive:  These folks are action oriented.  They will not allow you to take their plan and let it accumulate dust on a shelf somewhere.  Conflicts come in if they only work for one firm, specialize in only one product and/or don't have access to all financial products.  There may also be bias toward the highest commission products.  These conflicts and biases can be be minimized by the adviser providing evidence that the recommendations are the best he can find, thru side-by-side comparison.  You should also insist on evidence they are licensed fiduciaries.
"Free", Celebrity Advisers-  In their books, videos, radio & TV shows these "advisers" use a shotgun approach, scattering titillating financial tidbits that may or may not improve your situation.  Oddly, these are also the people who propagate irrelevant tests and evidence-free secret passcodes to sabotage their competition, the true professionals like myself.  They prey on our human tendency to wish hard choices were easy, as is the case when using skin color or gender to assess someone's virtue.  And, as entertainers, authors and "journalists" they are neither licensed nor regulated.  You can't look up their compliance history.

Having been in this business since 1978, I've experienced every type of compensation, all the way from being a salaried employee, through 100% commission to 100% hourly fee-only, to my current hybrid model described below  Here's the ideal structure I've settled on as being fair to me and, at the same time, in the best interest of my clients:
Fee Minus Only-  Never heard of it?  As far as I know, I'm the only one in Oregon with such a contract.  In a nutshell it says that I charge $250/hr. for a comprehensive planning process.  But if, as a result of implementing that plan, I receive 3rd party compensation then I reduce or refund the hourly fee, dollar-for-dollar.  What is the effect on you?
  1. You get the unbiased services of a holistic, fiduciary adviser who puts a great deal of work into learning about you and your situation, and, collaborating with you to improve it.
  2. I normally eliminate your risk of accumulating an unknown total fee by capping the number of hours for which I will charge.  This cap can't be changed without your written consent.
  3. If the best products and services for implementing your plan (and you're the one who chooses) pay compensation to me, then in effect a 3rd party ends up paying some or even all of your fee.  If the best products and/or services pay no 3rd party compensation, then I'm happy because I get paid well either way.  You're happy because your current and future costs are lower than with any other arrangement.
  4. Any and all conflicts are fully disclosed.
So yes, there are some key tests of whether an adviser will work for your best interests.  But they're not secret, they're not magic and they're not simple.  Here are the key questions to ask any adviser:
  1. Are you a legal fiduciary in this state?  How can I confirm that?
  2. What are your conflicts of interest?  "I don't have any" is the wrong answer.  Could you spell them out in writing?"
  3. Are you holistic?  If they are,they will use tools such as personalwealthindex.com to learn about you as a whole person rather than an account balance.  Simply using a Risk Tolerance Questionnaire is woefully inadequate.
Hence, if you're not racist or sexist then work toward the same enlightenment when it comes to your finances.
Best Wishes Always,
Gary
Your Constructive Comments are Welcome!

Tuesday, February 6, 2018

The Dow's Largest Percentage Drop in History is Significant

Well, it isn't.  I would love to use scare tactics to convince all my fence-sitters to finally move their money.  But I refuse to exploit the worst two investor motivators:  fear and greed.  What I do seek for my clients is happiness, lack of stress & confidence in their future ability to meet their budgets.
Yes, the 1100 point drop was the largest in history.  But as you can see, it's an insignificant blip if you look at the long term.  However, this "blip" is equal to the entire value of the index in 1984.  See today's chart below.
How did we go from 1100 in 1984 to 26,000 in 2018?  Inflation only triples the 1984 value.  So in 1984 dollars the DOW is at 8112.  So the actual average annual return, less inflation, is 6%/yr.  Yet even in this frothy market we have billionaire asset "managers" projecting 11% returns into the future.
Be that as it may, how did this magic happen?  Are there prices we have yet to pay for this exponential curve?  I think so.  The market, far from being efficient and transparent is instead rather blind and mute . . . and developmentally disabled.  It doesn't see much farther than the end of the next quarter and it is unable to tell us about the things it can't see.  And it will never change because too many people profit [temporarily] from this pathology.
The markets & economic metrics (like the GDP) quantify goods and "bads" equally.  And it shorts us on the economic impact of both.  If an arborist is hired by a city to plant a row of trees downtown, the amount he is paid adds to the GDP.  The services the trees subsequently provide (cleaner air, surface water management, increased property values, habitat, happier people) are neither quantified nor counted.  If Exxon destroys an entire ocean gulf with an oil spill, and toxic chemicals to diffuse the oil to hide it, the cost of cleanup adds to the GDP.  Most of the real costs of Exxon's carelessness are deferred to the future.
So my point is that that steep curve has come with a hefty price tag, to our health, wellbeing, communities and the environment.  We just don't know what the price is yet.  As our data collection and analysis continues to skyrocket, I think we will begin tabulating and quantifying those costs and that should lead to better and more immediate pricing of both goods and bads.  And that should level out the DJIA for good.
How will you be affected personally by all this?  What should you do now?  Wouldn't it be important to get some ideas?  Request a meeting with me at
https://www.garyduell.com/contact-us/

Your Constructive Comments are Welcome!

The Tax Cuts and Jobs Act of 2017 will boost 2018 economy

I don't know if this is a myth or not.  But I do know that piling on the Federal debt is an economy killer if done capriciously rather than as a recovery tool.  This time it's utterly capricious.
  • In anticipation of the trillion dollar manna from the Treasury that this bill will create, financial companies commit to lavish bonuses and raises for their employees, Hartford, Travelers, Money Concepts, Kingstone to name a few.  Will they share that largess in the form of premium decreases, higher interest crediting rates or less costly riders?  Will they warn their employees about the future higher taxes that will be necessary to keep the Treasury funded?  Does anyone recognize the key role the federal government plays in stimulating and stabilizing the economy?  Does anyone realize that these raises and bonuses are less than a drop in the ocean?  What do you think?
  • An expanded estate tax exemption ($22.4 mil. for a couple) will decrease the need for estate tax planning for most Americans.  So they'll be canceling, cashing in, or even selling expensive life insurance policies that were designed to pay the tax. 
    I mean what the heck.  If you're an only child, how could you possibly survive with less than $22,400,000?  It's wonderful that an American, regardless of merit, can acquire that kind of power by winning the ovarian lottery.  Isn't that why our forebears left Europe, with all its feckless kings, queens, dukes, duchesses, lords and ladies?
  • In a calculated stab at Blue states, the allowed deduction for state, local & property taxes will be capped at $10,000.  This will increase the outflow of federal taxes from states that are already donor states (pay more in taxes than they receive in benefits).



Your Constructive Comments are Welcome!

Friday, December 15, 2017

TOP FIVE FINANCIAL SCAMS OF 2017 AND TWO NEW ONES FOR 2018

I really wish this heading was a myth but as our devices and their connections get more sophisticated, so do the scammers.  Here are the top scams to be wary of, straight from the NASAA:

  1.  Promissory Notes-  As fixed income sources continue to languish, retirees will consider almost anything to increase their guaranteed income.  As pointed out in the press release, normally such notes are sold to large sophisticated or institutional investors who can confirm the notes' backers' capacity to repay the loans.  WARNING:  these are marketed to individuals as short term notes, less than 9 months, to avoid securities registration requirements. Unsure?  Check with your state's securities division.  Oregon's is http://dfr.oregon.gov/gethelp/Pages/index.aspx  In addition, check to be sure the firm and representatives selling you the note are licensed and registered in your state.  Otherwise, turn them in!  I was pitched 12 mo. mortgage backed securities this year that turned out to be unregistered.  Oregon issues a cease and desist letter.
  2. Real estate & pyramid schemes were second most reported scams.
  3. Oil & Gas related schemes ranked 3rd.  But really?  You're going to support this industry that is killing our climate?
  4. Affinity fraud- to me this is the most outrageous of scams, where groups with high implied trust are targeted by scammers.  This can be your church, sports team, co-workers, ethnic or professional groups.  Because of the implied trust of these groups you should be more suspicious of any financial offerings within them.
  5. Variable Annuity sales practices-  These intricate, expensive and risky products can still have appropriate uses.  But they are inappropriate for most retirees since there are far safer, less costly annuity alternatives.  Always ask why this product is the #1 recommendation.
Scams clamoring for top billing in 2018 all involve the criminal misuse of technology:
  1. Initial coin offerings (ICOs).  That would be virtual coins, not collector coins.  Need I say more?  Not sure how much room there is in the market for BitCoin wannabes.
  2. Cryptocurrency contracts for difference (CFDs)- prohibited in the USA, for good reason, even if the platforms presented to you are legit, here is a great way to exponentially multiply your losses.  As Keith Woodwell (NASAA Enforcement Section chair) puts it, "There are red flags waving everywhere:.

Your Constructive Comments are Welcome!

Wednesday, November 22, 2017

The Estate Tax Hurts Families

I don't believe this blog title nor is it true.  $22 million is a wildly excessive head start for the largest of families' kids.  Besides, even that amount of money could do more harm than good for your kids.  Very timely this time of year is the article below by John McManus.
As with lottery winners and athletes who are in danger of spending significant portions of their new-found wealth in an instant, children who were raised with wealth must be properly prepared to handle affluence and their inheritance wisely
Older generations must be intentional to guard against the development of affluenza in children of all ages.
Here are 10 tips to help clients accomplish this elusive goal.
1. Reality Check: Preventing affluenza starts with discipline. This includes enforcing consequences when the child breaks rules and giving responsibilities such as chores in early childhood. Each shows that there are real consequences for one’s actions and that life requires hard work and accountability, regardless of status and wealth. Giving children duties creates opportunities for them to feel accomplished when those duties are fulfilled. It also establishes a pattern or habit of personal responsibility. Often it is with these struggles that real personal growth takes place.
2. Better to Give than Receive: Involve children in philanthropic activities and have them volunteer for a charitable organization of their choice. This provides children with a genuine sense of what life is truly like for the majority of the community which is less fortunate. As a result, it develops a profound appreciation for the opportunities they are receiving and, further, what their inheritance can bring in the future if managed properly. Prior to their earning years, children can often better understand the sacrifice of giving time, as they haven’t yet had the privilege to make money or manage their livelihood or lifestyle. Hours in a day, on the other hand, working selflessly for the benefit of others, feel very real to them.
3. The Most Important Things in Life Are Not Things: Informed families derive enjoyment from activities that do not require buying the latest items or spending a significant amount of resources, but stresses the value of relationships and celebrate personal achievement. The amassing a great deal of wealth should not be viewed as an end in itself or essential to achieving happiness. Therefore, involve children in activities that create enjoyment but aren’t driven by the payment of money, and instead require commitment of time and personal effort, such as sports. School activities and undertakings that build relationships in the community are very important.
4. Patience Is a Virtue:  Require children to save for things they wish to purchase. This teaches the value of money, self-control and delayed gratification. It also leads to a much deeper appreciation for the items earned. Postponing gratification builds character, discipline and fortitude in children, and it creates strength for managing relationships with others. Meaningful relationships require each of these personal traits.
5. Knowledge Is Power: Enroll children in basic, age-appropriate financial literacy classes. It is a good investment in a child’s future and will help them learn to manage the money they earn and their family inheritance. Spend the time to teach children to protect themselves first from themselves, before protecting themselves from others.
6. No Substitute for Hard Work: Beginning in high school, especially during the summertime, encourage children to secure employment or start their own businesses to earn resources. This imparts the meaning of hard work, the importance of being responsible and accountable and the pride of ownership in dollars earned. In affluent families, travel and other enrichment activities, including participation in sports events, can make it difficult to consistently integrate the weekly responsibilities of a summer job or other activities during the school year, which often are the most enriching lessons of all.
7. Word to the Wise: Identify advisors that can be trusted to guide children once their inheritances are received, but these individuals should be introduced while your children are adolescents. The value of having these advisors in their lives should be covered as well. Concepts can be integrated modestly regarding the management of family assets. It is an iterative process; a 14-year old may not fully appreciate the value of the family advisor in the same way that a 20-year old would. That said, at a very early age, make it clear that a child must come to trust their established and proven professional relationships.
8. Failing to Plan Is Planning to Fail: Develop a plan for significant assets to be passed in a shielded way. Create goals for the orderly process of wealth transfer, and outline what resources should be allocated and what vehicles should receive them. Move assets to be passed to children into protected entities first to safeguard them, and then communicate to the children at a later date that the assets exist—eventually let them know the size of those assets. As we move to guard assets from others, think of it as a gradual process instead of a “wholesale immersion” of the children into the family finances. That said, fearing children will find out too soon is a reason why too often people fail to protect the assets and themselves. As a child learns more about their interest, teach them to be more active in its management and protection rather than spending it.
  1. Include requirements to pay off any debt, calculate income and living expenses, and create a realistic budget.
  2. Encourage the child to invest and track assets received. Portfolios must compound to outperform inflation, key to avoiding dissipation of the protected assets. The assets must also be diversified to avoid concentration in just a few positions, which can lead to dramatic losses if the concentrated bet fails.
  3. Consider putting a temporary freeze on making significant decisions regarding the assets; this can allow time for the child to think through their situation and avoid making monumental mistakes due to impatience or panicky decisions with their inheritance.
9. Know When to Say No: Children should always be selective in their choices of friends. It is simply unavoidable that certain friends may be attracted to the lifestyle that a child enjoys rather than the quality of the child’s character. As children grow, part of their decisions regarding their friends might be: “Is this person or group spending time with me because of my family’s affluence? Do they support the values we promote as a family?” An example of a red flag could be if a child is asked or is presumed to pay for common items when they are out with others.
10. Preparation Is the Key to Success: Create or update estate planning documents. The best laid plans are irrevocably undermined if parents pass away before completing the mission of ensuring that their children are ready to accept the inheritance. Delivering a gift in a protective vehicle is as important as delivering the gift itself.
  1. Not only create trusts and protective partnerships, but be prepared to amend your Will to reflect any new situation that, if otherwise ignored, could affect your child’s growth and progress within the family. If there is a demonstrated weakness with social or financial matters, for example, this will require further maturation.
  2. Setting up a trust for a child offers him an opportunity to exercise the wisdom you have provided from a very early age with the protection against wrongful, unanticipated attacks. Have a co-trustee serve with the child well into adulthood. The trustee’s job is not to give the child a fish, but rather to teach him to fish.
As Warren Buffet once said, “A very rich person should leave his kids enough to do anything but not enough to do nothing.”
Your Constructive Comments are Welcome!

Thursday, October 19, 2017

The Nation's Retirement System Needs a Comprehensive Re-evaluation says the GAO


Yes, I'm calling this a myth.  For the following reasons:

  • An excellent retirement system called Social Security was designed by Francis Perkins and her committee back in the 1930's right after the preventable debacle of the Great Depression began.
  • That excellent system has been under attack ever since it was conceived, primarily by people who just can't stand for other people to have happiness; it's not enough that they've "won" the wealth game, everyone else must also lose.
  • The majority of workers are willing to pay the taxes necessary to fully and indefinitely fund benefits.  It is a myth that there are only two workers to pay the necessary benefits for each retiree; 25% of beneficiaries keep working and paying taxes.  Reagan lied about this clear back in 1981 as he severely slashed benefits, saying there were only 3.2 workers for every beneficiary.
  • Every other industrialized nation in the world has a livable pension for its seniors
  • If we could first solve the pernicious problem of mertiless accumulation of vast wealth and power we could design an efficient and effective healthcare delivery system, leaving trillions of dollars on the table for Social Security enhancement.  And enhancement is what it needs:  reduce full retirement age back to 65, eliminate taxes on benefits for all who earn less than median income, and eliminate the cap on Social Security taxable income.
Read the report yourself here at http://www.gao.gov/assets/690/687797.pdf

Your Constructive Comments are Welcome!

Tuesday, October 3, 2017

My Adviser Will Live Forever

This is a myth, of course.  But rarely do we discuss the consequences of, or solutions for, the mortality of our advisers.
I'm writing this post because this year I seem to be getting way more questions from potential and existing clients like, "Well what happens to our plan if you're no longer around?"  I don't know if this is because I look terrible lately or because I went on Medicare this year.  Or maybe both.  But it's a smart and legitimate question.  Here's how I answer:
First of all, a large portion of my plans can usually be called "set it and forget it" requiring little future tweaking, other than for untimely life events like unemployment, divorce, disability, or death.  But even those risks are largely taken into account.
Secondly, I have a succession plan should I become incapacitated or deceased.  Without giving too many details- to protect the security of your data -I can tell you this:  Upon my incapacity or death, my Personal Representative can present proof of that to my CRM vendor and gain complete access.  Then they notify all the vendors, partners & clients in my database.  I have designated professional partners who will either step into my shoes or find appropriately experienced and credentialed individuals to do so.  And they will be in touch with you to discuss any necessary changes.
Finally, in my experience, most successful advisers never retire anyway.  We are in this profession because it is extremely gratifying to make such a difference in the lives of our clients.  Having heard the hopes and dreams of thousands of retirees, we understand the importance of finding happiness now instead of deferring it to a couple decades of post-professional idling.  Besides, the Life Expectancy Calculator says I'm going to live to be 98 so I may outlive most of you!

Your Constructive Comments are Welcome!

Friday, September 15, 2017

MYTH: I don't need to check my beneficiary designations

A friend recently chastised me for having too much political content on this blog.  "Start another blog!", he ordered.  I disagree because every topic I choose for this blog pertains to your financial health, even if only indirectly.  But it's true; I do mostly take a macro, or big-picture view.
So this is a micro issue that can mightily impact you and your family:  Beneficiary designations on your insurance policies, annuity contracts, IRAs, etc.  Always one for source attribution, these were originally published by Dayana Yochim of Motley Fool, April 23, 2008.  But they are still apropo.  And of course I will exercise vast editorial license.

Top Five Beneficiary Form Boo-Boos
  1. Assuming your will takes care of all the details.  Beneficiary designations always trump your will.  It's important to be sure these documents agree with one another.  Dayana suggests that if you have a living trust then it should be the beneficiary.  I disagree, unless you want the proceeds paid out in a specific and weird manner.  Naturally, ask your attorney's advice.
  2. Subjecting your heirs to an avoidable tax bill.  Failing to name beneficiaries on your IRA robs your heirs of being able to do a Stretch IRA.  With no beneficiaries specified, your IRA will be probated and the non-spouse heirs must  liquidate it within 5 years.  Most heirs don't even wait that long, taking the lump sum and nudging themselves up into the top tax bracket.  And then all subsequent earnings and capital gains will be taxable to boot.
  3. Forgetting to update forms when life changes happen.  Probably worse than not naming beneficiaries to begin with is having your money go to someone you no longer like, such as ex-spouses, profligate adult offspring, or "out"-laws.
  4. Not having a plan B.  Always name multiple beneficiaries.  If your primary is a single, 100% beneficiary, then name a couple first & second contingent beneficiaries.  If you have just one beneficiary and you both die together in a skydiving accident then the court gets to decide who gets the procedes.
  5. Naming minor children as beneficiaries.  This is how I construct beneficiary designations but you want to be sure you have guardianships detailed in your will and/or trust.

Closely Following the News Will Make You a Better Investor

Yesterday, during my lunchtime jog, as the stream of consciousness flowed, snippets of the week's news kept bobbing by.  I never watch the news; why compound the damage?  The only time I ever listen to the news is in the car.  And then only to NPR/FOX.*

"Two men caught in Paris with bomb-making materials"
"The DOW is up 68 points"  (to what, they don't say)
"North Korea launches missile over Japan"
And so on.

Years ago when I would catch a program on NPR my usual response was, "Wow, I'm glad I had time to listen to that!".  Now my usual response is, "What the hell do I need to know that for?"  Or, "I wish I hadn't heard that!".  There are common elements among the newsesque programs which are ubiquitous and that is the editor's desire to fabricate the illusion that:

  • We humans rarely get along and, in fact, are normally at one anothers' throats
  • The world is dangerous
  • I have my finger on the pulse of the world baby! ("The DOW is up 68 points".  I would have trouble coming up with a more useless tidbit.)
  • Other people are basically stupid and dangerous
  • My "tribe" is superior
This sets us up to be fertile ground for corporate & government intrusion into our lives and the lives of others, driving our focus into the base brain where fear & anger lurk.

On the other hand, I get all the daily news I need in my morning meditation:
  • Life is pretty awesome
  • People are amazing, essentially loving beings
  • The older I get the less I know
  • All of us have suffering
  • All of us have the capacity to decrease suffering
  • In that important respect, we're all the same
So what does that have to do with investing?  Calm & contented investors make better decisions than angry, fearful, suspicious investors.




*Yes, it seems like NPR has adopted the lizard brain focus of FOX

Your Constructive Comments are Welcome!

Tuesday, August 1, 2017

The Fed Funds Rate is Significant and Warrants Close Attention

I hope I don't repeat myself too often in pointing out that the titles of this Financial Myths blog are, indeed, financial myths.  Especially this one.  All the Fed Fund rate is is the rate that the Federal Reserve suggests that banks charge each other for overnight loans to meet their reserve requirements.  Financially sound banks can negotiate better terms amongst themselves.  The rest can pay the set rate or, failing that, go to the Fed's discount window.
For the sake of simplifying this, imagine that you and a friend each have a coffee cart.  You're on different corners so you don't mind cooperating.  One way you do that is if, at the end of the day you don't have enough cofee to meet demand the following morning you can borrow from your friend, who may have coffee left over from today.  Then when your suppliers open the next day you restock and also buy enough to pay your friend back.  And vice versa.  You agree to pay each other 0.1% of the value of the borrowed coffee for the overnight loan.
This has nothing to do with the prices you charge for your coffee!  No relationship whatsoever.  But suppose the public doesn't know that.  You meet with your friend and decide to double your loan rate to 0.2%.  Then you both announce that your Coffee Beans Overnight Rate has doubled so you must also double your coffee prices.  The public says, "Well, yes, that makes perfect sense".  But the fact is, you have not incurred any additional costs no matter how high you raise the Coffee Beans Overnight Rate because you borrow from, and pay, each other almost equally.
Banks and other financial institutions use the Fed Funds rate as an excuse to raise the cost of their money even though they had plenty to loan out at lower rates.  It is merely one of many parts of the one-way wealth valve that has decimated the middle class and enriched the already enriched by removing virtually all connection between productivity and income.  If the Fed were really interested in fulfilling its mission of Full Employment, it would inject funds directly into the economy, straight to individual human consumers.

Your Constructive Comments are Welcome!

Thursday, June 1, 2017

Top Ten Attributes Millionaires Share- Guest Contributor

These are not myths!  Becoming a millionaire seems out of reach to many people. It appears as if you need money to make money. However, several studies have been applied to millionaires and billionaires. These studies covered habits of the upper class instead of just their financial status. Take a look at the habits or attributes that these successful people share so  you can emulate a few of them. You might find yourself managing a huge, bank account .

1. Keeps Up With Financial News
[GD1] 

The "Wall Street Journal" is a classic newspaper that's dedicated to the financial world. Financial information is also found in certain sections of any other newspaper around town. Currently you might skip over this news section. But consider changing that habit. The majority of wealthy people are deeply involved with each day's financial news. They're aware of businesses that are expanding or declining in value. Mergers, stock information and other data contribute to your financial health in the long run. Any piece of information in the financial news can guide your choices as you refine your 401(k) investments or stock purchases on the side. Understanding how the financial world works is a first step toward being a wealthy individual.

2. Improves Their Education

If you examine a millionaire's educational background, he or she may have a list of degrees, certifications and classes earned over the years. Successful people thrive on education. They want to constantly improve themselves, especially if they manage employees at some point. Millionaires take classes on psychology, marketing and other broad subjects so that they can apply that information to their everyday operations. Some individuals may want to change industries entirely so they go to school to learn about a specific trade or sector. Every piece of knowledge only improves the millionaire's outlook on life as more opportunities open up in response.

3. Maintains a Budget

When hardworking people look at millionaires in the news, it appears that there's a never-ending flow of money. Successful people know better, however. You might be surprised to hear that millionaires have budgets. They may have more wiggle room in their grocery shopping budget, but there's still a limit on spending patterns. By being conservative with the spending, any extra funds can be invested back into stocks or bonds. Wealthy people tend to make the money work for them as interest adds up over time. Anyone can start a budget and gain more wealth. It simply takes some dedication to the process in order for it to be successful.

4. Rises Early

Sleeping in is not on the millionaire's list. On most days, including the weekend, they wake up between 5 a.m. and 7 a.m. The early morning is normally a productive one for any human being because the body's circadian rhythms tend to be the strongest at this point. Millionaires take advantage of the clear mind upon waking, and they'll start their day. Emails, meetings and work responsibilities can be the priorities with the morning open to career opportunities. If anything can't be taken care of during the morning, the entire afternoon is still open. Millionaires know that hard work pays off when you spend time on your goals.  But having said that, everyone is different.  Some people do their best work well into the wee hours.  It’s important to be sensitive to your unique cycles and capabilities.

5. Leads Healthy Lifestyles

For the most part, millionaires lead healthy lifestyles. They'll prioritize exercise while eating a balanced diet. Some entrepreneurs even have gyms or workout equipment in their offices as a way to streamline the workday. Although there are some exceptions to this rule, the healthy lifestyle tends to be a main habit shared throughout the millionaire set. It's possible for anyone to acquire this attribute with a little perseverance. You can't be fresh and ready for opportunity if you feel tired and sick with unhealthy foods and no exercise. Millionaires actively seek out restaurants with a healthy spin on their favorite foods, or they might hire a cooking service to help them out at home.

6. Limits Media Distractions

If you're inclined to sit in front of the TV for hours at a time, a millionaire status may not be in your future. Most wealthy people don't spend a lot of time dabbling with media distractions. Television, social media and movies are all distractions from other tasks that can be completed in a day's time. In general, millionaires might spend about one hour in front of the television each day. Turn off your TV so that you can challenge yourself in other ways.

7. Sets Daily Goals

You may have lifelong goals in mind that include scaling a mountain or meeting the President of the United States, but millionaires create daily goals. They'll take some time each day to write down their goals for the next 24 hours. It's a fact that not all goals will be achieved so successful people prioritize the list with numerical highlights. Once the day begins, millionaires start on their to-do list and try to complete it by the day's end. Goal setting is a habit that everyone can get into with some dedication to the art.

8. Takes Real Breaks

Millionaires also understand the value of a break from hard work. Lunch hours must remain sacred. Eat, socialize and unwind during this period so that your mind can be focused when afternoon responsibilities arise. This break concept applies to your nighttime rest as well. Adhere to a reasonable bedtime hour, such as 11 p.m. Shut off lights and electronics as you fall asleep. By maintaining this bedtime and break schedule, you'll be fresh to take on the day's challenges.

9.  Takes time for Creative pursuits

Being creative with your funds is also a part of a millionaire's habits. Any extra funds might be put towards an invention or concept that you've been nurturing for the past few years. At some point, you may have a new product or service that catapults you into an even higher tax bracket. Be a millionaire who's happy with life by investing in things that are important to you. It can pay off in the end.

10. Is Generous and grateful

Although in mainstream media we see mostly stories to the contrary, in general the wealthy are also generous with their time and money.  They view the world as abundant.  Gratitude for what one has is more important than constant striving after more and more.  

Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks and business checks.


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