MYTH: Presidents always tell the truth

I know. The title of this blog post goes without saying, unless you're a tea-brain talking about your favorite politician of the month. But I never for a moment thought that Barack Obama would be the latest President to disprove this myth: On December 6, he spouted a whole raft of lies. ( Sorry, with his credentials I can't give him the benefit of the doubt for simply being ignorant like his predecessor).

So here are three of the lies about his deal with the Rethuglicans to extend the Bush tax giveaways:

1. "The typical American family would see their taxes go up by $3000 next year".  False.  For that statement to be true, the "typical" family would have to have taxable income of $135,000.  Actually, the median family income is $52,000/yr.  And if Bush's welfare-for-the-wealthy were allowed to expire the typical family's tax would only increase by about $335.  Don't believe me?  See My Tax Burden.  Close, only 1000% off.   Strike one, Mr. Obama.
2. This could result in "well over a million" jobs lost.  False.  The exact opposite is true.  Supply side economics has been thoroughly and repeatedly refuted, ever since the term was first raised up the flagpole by Nixon's economic adviser Herbert Stein, a conservative Keynesian.  What drives any economy is demand not supply.  When money is spent, demand increases and jobs are created.  When money is secreted overseas, which is where much of the top bracket tax cuts go, circulation of currency is gutted & demand plummets.  (Nobel prize winning economist Paul Krugman estimates continuation of welfare-for-the-wealthy could take $3 trillion out of the economy over the next 10 years.)  If tax cuts create jobs, why the massive bleeding of employment during every single year of the Bush administration??  Strike two Mr. Obama.
3. Although he didn't specifically say it, the nature of his speech and its astounding concessions to Rethuglican leadership imply that there were no alternatives.  But the fact is, if this Congress lets the tax cuts expire, who cares if the new Republican majority tries to reinstate them next year?  Just veto their bills Mr. President.  And right now, force these thugs into a public up-or-down vote against their own unemployed constituents, letting their benefits expire, thereby dramatically displaying the true Rethuglican agenda:  perpetuate welfare-for-the-wealthy, keep screwing the majority of Americans.  Strike three Mr. Obama.

Five Totally Worthless Financial Products

This excellent article by John Persinos in "Investing Answers" deserves repeating. I could easily expand it to twenty-five. But here is my summary of the article:
#5. Extended warranties for consumer electronics- Odds are that after the manufacturer's warranty expires you can find a superior replacement for less than you paid for the original.
#4. Payment protection insurance- This is an emotional purchase. Read the contract and do the math and it just doesn't add up.
#3. "Special" credit cards- just look for the lowest interest rates & fees. If you can get those paired with bonuses like extra airline miles, great. Just be sure there are no extra costs as long as you pay off your card balance during the grace period.
#2. Debt management plans- look for free or low-cost services like: Budget Calculator
#1. Any credit report that is not free- You can get a free report from any one of the credit bureaus annually. But why? Who cares? Plus, my understanding is that every request for a report actually lowers your score.

MYTH: We're not helping our veterans. Hurry to enroll in this FREE program.

Well, I think it is true that in many ways, as a country, our treatment of veterans is woefully inadequate. But not in Clackamas county. See details below for this FREE series of classes on business management. This is not only for established businesses but also for vet's who would like to start a business.

The Clackamas Community College Small Business Development Center (SBDC) was recently awarded a grant from the U.S. Small Business Administration (SBA) to develop and deliver a special version of our highly successful and long running Small Business Management Program (SBM). This new Veterans SBM, has been designed especially for returning but recently deployed service members who are either business owners or key employees and whose business has been impacted by their deployment. We are also enrolling veteran business owners with earlier service on a space available basis.

This program will allow each entrepreneur to work “on” and well as “in” his or her business in order to achieve business, family and personal goals. The program is designed and proven to improve small business owners’ management and leadership skills resulting in greater success and profitability.

The program will be taught by Dr. Thomas Jones, recognized as one of the 15 most innovative business educators in the United States and a Vietnam vet himself. (US Army 1967-69 1st Air Cav, MOS 11B-40 Republic of Vietnam).

This class will be 100% fees paid. Class will begin September 16 and be completed by Dec 31, 2010.

If you could help us get this information to our Oregon Vets you would be doing them a great service and helping us get the word out.

Thanks for your assistance and if you, or any of your associates, have any questions please call us.

Clackamas Community College
Small Business Development Center
(Phone) 503-594-0738, (Fax) 503-594-0726
Email: kathykb@clackamas.edu

No Myth: Need Another Crisis? By the numbers.

1. There are approximately 79 million Baby Boomers in the U.S. (those of us born between 1946 & 1964, roughly).
2. About 5 million have some form of Long Term Care insurance, or just over 6%.
3. About 15.8 million- 20% -will need Long Term Care insurance once they pass age 65.
4. Average cost in Oregon for a semi-private room: $78,475 or $6539/mo. (see Compare Costs)
5. Average annual premium for a 60 yr. old married couple to insure that $6539/month Long Term Care cost: $4672.00 ($3971 if in excellent health)
6. Lifetime additional cost of waiting just 5 years to buy Long Term Care insurance: $41,244.00 The premium cost doubles about every eight years, assuming you even qualify at that time.
7. Number of days on claim at age 80 to recover premiums paid: 120
8. Number of days the Long Term Care insurance will cover your nursing home stay: 1825

The Myth of the "Conservative" politician

They abhor "wealth redistribution". Unless it is from you to them, which has been the case since the Reagan borrow-and-spend years, accelerated by Clinton and blasted into outer space by GW Bush & his Congressional toadies.

They advocate fiscal restraint in government. Unless it takes benefits away from their owners, I mean, campaign contributors.

They hate taxes. Unless someone else pays them.

They decry government regulations. Unless such regulations give them unmerited dominance in the marketplace or squash their competitors.

They advocate a free market. Unless the market is sending their corporate leash-holders the message that their product or service is no longer needed.

They are the models & purveyors of morality. Unless doing the right thing would harm their re-election prospects.

They want freedom for all. Unless you're the wrong color, sex, sexual orientation, religion, economic strata, nationality, or any of dozens of irrelevant characteristics.

What's a "Fiduciary"?

Even though I disagree with most of Forbes' editorials, Neil Weinberg had a mostly excellent article in the August 9th issue. He begins,
"Everybody hates Wall Street and it's easy to see why. While one in six workers can't find a job, investment banks are hiring thousands. Goldman Sachs Chief Lloyd Blankfein recently bought an apartment on New York City's Central Park West for $26 million-in cash. How are you doing with your mortgage payments?"
He goes on to say that, after the industry wide $700 billion taxpayer bailout, New York City's financial sector awarded itself $20 billion in bonuses, an average of $124,000 for each banker, analyst & secretary. BONUSES, not wages. Bonuses. He adds, "Say, how is your 401(k) holding up?"
But here is where I really agree with Mr. Weinberg: he says it's our own fault for not standing up and insisting on real reform, for not holding our Congressional representatives accountable to us.
For example, initial versions of the recently passed financial reform bill required "fiduciary" standards for all financial advisers, including stockbrokers. "Fiduciary" means the adviser must put the client's interests above his own. That provision didn't survive, after heavy lobbying from the industry. Brokers can continue offering expensive crap that makes them the most money as long as we're dumb enough to keep buying it.
This, too, Weinberg places squarely in our own laps: Why would we continue dealing with people we know don't have our best interests at heart? Why not deal only with true fiduciaries, such as RIAs (registered investment advisers, like me)?

Myth: Capitalism is a Perfect System

As incredible as it may seem, there are prominent political, intellectual, and business leaders who believe that unfettered capitalism, a "free" market, can do no harm. For example Alan Greenspan, the principal architect of our recession, believed financial regulation stifles innovation. Thus his support of GW's deregulatory spree.
But as Stanford economist Joe Stiglitz points out in his latest book, "FreeFall", the only innovations the banksters and Wall Street came up with were how to avoid accounting and tax regulations. Had they really had any interest in innovation they would have figured out how to eliminate the risks of home ownership rather than compounding them.
Our capitalist system is imperfect and fails frequently and spectacularly. This happens, as Stiglitz points out,when private rewards become disconnected from public benefit. There will probably always be the type of "business" person who chortles at raking in profits while providing absolutely nothing of material value in return. This is known as sociopathy. It is a mental illness. This is why we need a strong, equitably enforced regulatory structure to keep such people from entering the market and to take them out if they somehow manage to get in. I dream of the day when everyone has to follow the rules, from the President on down to your local plumber.  Not that plumbers are at the bottom of any strata, it just sounded good.  Ok, how about down to the local kid mowing your lawn.

What if . . . .? This CD-killer is no myth.

Having never quite grown up, doomed, I suppose, to being a perpetual dreamer, I'm a great one for "what ifs". This is one of my favorites, what I call "The CD Killer".

In terms of safe money, what if:
1. You could earn double the rate your current CD is paying.
2. Defer taxes on the interest indefinitely.
3. Have penalty-free access to your funds
4. Triple your money if you ever needed long term care. Yes you're reading that right, triple.
5. Do all this regardless of your current health.
6. Protect your principal and earnings from creditors as well as from FAFSA reporting.

If that sounds the least bit intriguing to you, please contact me for more details.

Christian Financial Planning

OK. I know. I'm playing with fire. But this blog is intended to be controversial and challenging. And what could be more controversial and challenging than scrutinizing religion and money?
I especially love "Christian financial planning", because Christ was quite clear on His financial plan: sell everything and give it to the poor. (But then do the newly enriched poor have to do the same? That's true trickle down!) And then there's Jesus' analogy of a camel trying to go through the eye of a needle having better odds than a rich man attempting to enter Heaven. Not being a Biblical literalist- since I can't read Hebrew, Aramaic or Greek -from everything else I've read about him, I think Jesus was referring to attachment to or obsession with or love of money (or any other ego attachments for that matter) not just the mere possession of it. With no attachment to material wealth, one would indeed gain more happiness relieving suffering by giving than from clinging to wealth. Hence the camel metaphor. Some suspect a mistranslation, that instead of "camel" (kamilos) the word was "rope" (kamelos). The metaphor still gets the idea across as neither object is easy to push through the eye of a needle. So why would a Christian financial planner encourage clients' attachment to wealth and thus prevent their entry into Heaven?
Well, here's where the split in rationalization occurs. "Christian" is meant to imply "hey, you can trust me!". But then, every Christian Financial Planning website I've reviewed reverts to mostly Old Testament "Biblical financial principles", (which I won't get into). That way they don't have to deal with Christ's rather simple wealth resdistribution plan for which their services would be unnecessary. Does that seem contradictory to anyone else?

Myth: Banks are the safest place for your money

I hate to even go here because it sounds so crazy. 81 banks have failed so far this year (see Failed Banks). To put that number in perspective, it's almost 1/3 of bank failures since 2000 according to investinganswers.com. But here's the crazy part: Although the FDIC will tell us how many banks are on their watch list (775, last time I checked) they won't tell us the names of those banks, for fear of creating a self-fulfilling prophecy by freaking out depositors who will then take all their money out. The FDIC apparently would rather freak us out even more by secretly seizing our bank. Which we first find out about in the morning paper and all we can do then is spew coffee all over it.
What can we do now, though? Of indicators for bank weakness, the best is the "net charge-off rate", which is the percent of a bank's loans that the bank has given up on collecting. I can't take credit for any of this. See the excellent article at Bank.
How do you figure that out? Enter [drum roll] The Texas Ratio! According to Andy Obermueller's excellent article at the above link:
"The Texas ratio is determined by dividing the bank's non-performing assets by its tangible common equity and loan-loss reserves. Tangible common is equity capital less goodwill and intangibles. As the ratio approaches 1.0, the bank's risk of failure rises. Every bank that has failed in the second quarter has had a Texas ratio of greater than 0.90. In fact the average was about 5.0."

So here's what you've really been waiting to find out; the list of Oregon and Washington banks with risky "Texas" ratios (what's up with Washington banks??):

Oregon Banks
1.91 Albina Community Bank Portland
1.62 MBank Gresham
1.23 Bank of the Cascades Bend
1.16 LibertyBank Eugene
1.02 Home Valley Bank Cave Junction
0.97 Pacific West Bank West Linn

Washington Banks
3.13 Washington First International Bank Seattle
2.58 HomeStreet Bank Seattle
2.58 Seattle Bank Seattle
2.47 North County Bank Arlington
2.33 First Sound Bank Seattle
2.13 Shoreline Bank Shoreline
1.98 Regal Financial Bank Seattle
1.78 AmericanWest Bank Spokane
1.72 The Cowlitz Bank Longview
1.56 Viking Bank Seattle
1.46 Sterling Savings Bank Spokane
1.33 The Bank of Washington Lynnwood
1.20 First Heritage Bank Snohomish
1.16 Mountain Pacific Bank Everett
1.12 Business Bank Burlington
1.07 Bank of Whitman Colfax
1.04 Prime Pacific Bank, National Assn Lynnwood
0.99 Eastside Commercial Bank Bellevue
0.90 Cascade Bank Everett

What are "Socially Responsible" and "Sustainable" Investing?

One of the best online discussions of this issue that I've found is at:
michaelbluejay.com
But the most common catch-phrase (which Parnassus Investments has branded) is "Doing well by doing good". For long-term investors, SRI & sustainable investing should pay off better than short-term attempts to game all the systems in which business is done, whether legal, regulatory, environmental, social, ethical or other systems, because eventually such gaming will catch up to the perpetrators. Need I say "BP"?
Having said that, you may be willing to sacrifice higher investment returns and/or incur higher management expenses to be sure your most important principles are honored. For example, CrueltyFree purports to be a website directory of companies that don't harm animals to develop, test & manufacture their goods. This makes sense to me because people who in their minds can turn animals into objects probably do the same with their customers.
Still, how do you tell what's SRI and what isn't? Last time I checked, over 90% of Fortune 500 companies were included in so-called Socially Responsible Mutual fund portfolios. I'm sympathetic; the sheer cost of deeply screening companies for portfolio selection- if "perfect" -would price any SRI fund manager out of the market.
Thankfully, the Internet has become the great equalizer. Virtually anyone can drill down into the inner workings of just about any corporation.
But what criteria do you use? I like William McDonough's three simple principles that by now we should have learned from nature (he's author of "Cradle to Cradle"):
1. Waste Equals Food. All materials used by living beings in nature are constantly returned to the earth and used as food [raw materials] for other living systems.
2. Rely on Solar Income. Nature does not mine from the past. Current solar energy powers the whole system. By mining from the past (coal, oil, gas) and stealing from the future (ocean dumping, depleting fisheries, heating the atmosphere) we are proving to ourselves that our lifestyles will be scaled back, sooner than later, whether we choose that or it is forced upon us.
3. Respect Diversity. An intricate web of relationships among millions of diverse organisms provides stability to ecosystems so that they do not collapse when calamities occur.
These may seem like kumbaya, warm & fuzzy ideals to some folks. But what they really are are admonitions, sober warnings about how the real world works. Anyone, any society, any corporation trying to get around these rules will ultimately fail miserably.
So, in terms of where to invest, I think the rare company that is diligently trying to follow these three principles will do very well in the long term. Hey, what do you know. My company does.

What is BAD about annuities?

The Oregon Insurance Division has several excellent publications, including this one on annuities: http://www.cbs.state.or.us/ins/publications/consumer/3494.pdf
Here is one page of it, to save you the trouble. See my remarks interspersed:

Annuity sales to senior citizens have
increased significantly in recent years.
However, as annuity sales have risen, so has a
sense of confusion among consumers. This is
due, in part, to questionable or deceptive sales
practices by insurance companies and agents
looking to take advantage of consumers.
When considering buying an annuity, it’s
important to take precautions and arm
yourself with information so you can make
the best decision.
What is an annuity?
An annuity is a contract in which an insurance
company pays you income at regular intervals
in return for premium payments.
Well, that's a rather old definition of annuity, the literal meaning of "annuity". But the income can be deferred as long as you wish with the better products.
Annuities are most often bought for retirement and can pay a
guaranteed income as long as you live.
What are the different kinds of annuities?
There are several types of annuities, which carry
varying levels of risk and guarantees. To get the
most out of an annuity, it is important to know
the options available and the benefits each
type provides.
• Single Premium Annuity: An annuity in
which you pay the insurance company only
one premium payment.
• Multiple Premium Annuity: An annuity in
which you pay the insurance company
multiple premium payments.
• Immediate Annuity: An annuity in which
you begin to receive income payments no later
than one year after you pay the premium.
• Deferred Annuity: An annuity in which
you begin to receive income payments
many years later. Or not at all, at your option.
• Fixed Annuity: An annuity in which your
money, less any applicable charges, earns
interest at rates determined by the insurance
company or in a way specified in the
annuity contract.
• Variable Annuity: An annuity in which the
insurance company invests your money, less
any applicable charges, into a separate
account based upon the risk you want to take.
The money can be invested in stocks, bonds,
or other investments. If the fund does not
do well, you may lose some or all of
your investment.
• Equity-Indexed Annuity: A variation of
a fixed annuity in which the interest rate
is based on an outside index, such as a
stock market index. The annuity pays a
base return, but it may be higher if the
index increases.
Is an annuity right for you?
To find out if an annuity is right for you, think
about your financial goals. Analyze how much
money you are willing to invest and how much
risk you are willing to take.
Oregon law prohibits sellers from recommending
the sale or replacement of annuities unless
they make a reasonable inquiry about your
insurance objectives, financial situation and
needs, age, and other relevant information.
Be aware that annuities are not liquid and may
tie up your money for several years. This is misleading.
virtually all annuity contracts give you 10% liquidity,
or more, after 12 months. If you feel there is any
possible need for 100% liquidity within 10 years, then
that money does not belong in an annuity. If you get
out of an annuity in the first few years, the surrender
charges and penalties may cause you to
lose a significant portion of your investment.
Also, the commission a salesperson receives
may be taken directly out of your principal,
causing a net loss for the first few years of
your investment. This isn't really true anymore.
You shouldn't buy an annuity that deducts commissions
from your principal.
Contact your tax professional to determine
any negative consequences of buying or
switching to an annuity from another type
of investment; or if the annuity interferes
with your eligibility for medical care or
housing assistance. This is good advice,
but in many cases an annuity can actually help
with eligibility.
C

Myth: Glenn Beck

Yes, Glenn Beck, the one you see and hear on TV is himself a myth, an apparition, a fabrication. As he so aptly put it in a recent issue of FORBES, Beck doesn't "give a flying crap about the political process [hence, our country] . . . we are an entertainment company". Got that? Entertainment. Not news. Not facts. Not a legitimate vision of past, present or future. Entertainment. So if you rely for reasoned analysis on the "crying man-baby", as he is referred to in France, beware. Beck's show is to news as Saturday night wrestling is to Olympic sports.

Myth: Ayn Rand was a brilliant capitalist & counters "Obama's Socialism"

Any time Glenn Beck promotes a book, I get very curious, especially when written by vastly overrated, disturbed people like Ayn Rand. I read two of her books, "The Fountainhead" and "Atlas Shrugged" while working toward my bachelors degree in philosophy. At the time I likened these ponderous works to pounding a raw egg with a sledgehammer 100 times with the goal of creating a beautiful Easter egg; Rand's weak and obtuse "objectivism" was the forgone conclusion around which her copious and gooey prose was sloppily draped.
The best analysis of Rand and her works recently appeared in the 11/09 New Yorker as "Possessed" by Thomas Mallon. He opines of "The Fountainhead" "It is, in fact, badly executed on every level of language, plot, and characterization". I concur. And the best distillation ever of Rand's character pops up in the same article on page 65: "The philosopher's most famous directive was 'Check your premises', but those in her orbit never dared question hers". Otherwise bottomless insecurity would fulminate. And I would venture that she never checked her own presumptions either.
In my experience as a perpetual student and avid reader, the best authors and teachers are also copious readers and insatiable students themselves. As Mallon points out, Rand appeared to be profoundly ignorant of the actual writings of the authors she touted, from O. Henry to Mickey Spillane. So rather than her scholarship being the primary bait for her fan base, perhaps her "arrestingly abrasive" persona and atheism were the attraction. Who knows. Who cares?
But here's the interesting and significant fact- that I did not know -Mr. Mallon reveals: Among Rand's groupies, otherwise known as "The Collective" was Alan Greenspan. Wonderful! So we had a guy running (ruining?) the Federal Reserve who believed government is an evil impediment to the always virtuous entrepreneurial pursuits of the infallibly noble businessman. That explains a lot, how the foxes came to be guarding the chicken coop. How could anyone think that we need armies, police, fire fighters and even sports referees but not also need financial regulators to control the darker sides of human nature, especially when it comes to power and money? Yes, even business people like me are subject to human weaknesses such as greed & shortsightedness. Self regulation- especially by Wall Street -has always failed.
I'll take Obama's "socialism" (which it really is not) over a free-for-all market any day. No one who has looked up the definition of "socialism" could disagree. We all enjoy our socialist roads, socialist military, socialist police protection, socialist court system, socialist Internet (created by the government, made possible principally by funding Al Gore secured for it), airwaves, etc. I just want the most efficient and effective systems in place. Sometimes the private sector does better. Other times mass cooperative efforts (aka, government) perform better. Labels such as "socialist" or "free-market" are merely being used in place of real thinking.

Myth: The "Patient Protection and Affordable Care Act" is a terrible law

This bill stinks because the Democrats could have easily included some important essentials, including:
(1)A National insurance exchange, including a public option
(2)Repeal of the anti-trust exemption for health insurers
(3)Allowing Medicare to bargain for lower drug prices.
Ideally, a national, single-payer system (Medicare for all) would have saved us the most money and left no one uninsured. This bill allows the poor to opt out of buying insurance if they can't afford it. Huh?
But here are some of the good, and weird, parts:
Good: Insurers can't rescind (retroactively cancel) your coverage unless you committed fraud or intentionally misrepresented material facts. So if you forgot to mention that visit to the dermatologist they can't then cancel coverage after you have a mastectomy (actual case). The acne was immaterial, and, you didn't intend to conceal it.
Good: Will require health plans to report on benefits or reimbursement structures that improve health outcomes, prevent hospital readmission, improve patient safety & promote wellness. Do ya think?
Good: Maximum waiting period for pre-existing conditions will be 90 days.
Good: Requires a whole host of experimental "demonstration projects" to test various cost and care strategies. This is an admission that they can't possibly know all the best solutions up front, unlike Rush Limbaugh.
Good: Creates an ongoing "Interagency Working Group on Health Care Quality" which will have a results oriented focus on best practices.
Good: Makes Medicare reimbursement rates more equitable among the states, which will benefit Oregon and- I hope -stop the mass exodus of doctors from Medicare patients.
Good Expands student loan forgiveness to include health professionals who go to work for public health agencies.
Weird: Increases from 10% to 20% the penalty for using HSA funds for nonmedical purposes. Was that a problem?
Bad: Raises the AGI threshold from 7.5% to 10% for deductiblity of medical expenses, with few exceptions.
Weird but Good: 10% tax on indoor tanning. Yes, tanning salons should pay for the skin cancer they cause.
Weak and Weird: The requirement that everyone buy insurance. Except sometimes. This may change soon, but right now an individual making less than $150,000/yr. will be penalized $750/yr. for not buying health insurance. Over that income level, add 0.5% of the excess income to your penalty. Let's see. Should I spend $500/mo. for health insurance or pay a $750 penalty, and then when I do get sick, enroll in a plan because they can't refuse me? Might work. But what if you have an accident? Or heart attack? Or some other event that renders you unconscious or otherwise incapacitated, or, needs immediate attention? You will not be covered until you enroll in a plan. And then there's that pesky 90 day waiting period. I know that coverage will not be retroactive.

MYTH: People want Jobs

All the politicians are talking about "jobs creation" (has a nicer ring to it than the singular "job creation" apparently). But nobody really wants a "job". They want satisfaction, a sense of fulfillment & confidence in the future. They want the pursuit of happiness. But not in the perverted, egomaniacal sense used colloquially. When they put that phrase in the Declaration of Independence, Jefferson & Franklin weren't referring to the vapid notion of "enlightened self-interest" that the free-for-all market wonks like to mindlessly babble about. Jefferson & Franklin intended that the greatest expression of human virtue- and therefore the greatest source of enduring satisfaction -was the pursuit of happiness not only for ones self but also for one's community at large. They felt that this was an inalienable right for which government should be structured to support and protect. Great contributions to happiness in general should be greatly rewarded.
And therein lies the myth of "jobs creation" being a source of happiness. Shouldn't workers also share in the rewards of their productivity?
Between 1990 and 2006, worker productivity increased 135%. But during the same time period, average wages were up only about 10%. Workers have been disconnected from the fruits of their labors! Where did it all go? The rewards were siphoned to the top and/or out of the country. See Follow the Money. Between 2001 & 2007 (the Bush years, remember?) the top 400 income recipients saw their after tax income skyrocket 476%. During the same period median family income soared, well . . . zero %.
Our government has failed- by the design of the multinational corporations that run it -to create a level playing field, a place where everyone has the freedom to pursue happiness for themselves and their communities, a place where creation of value- rather than decimation of it -is fairly rewarded.

BOOMERS; you're more realistic than your parents think.

A study by financial behemoth, Allianz Life, revealed something that surprised me. One of the survey questions asked: Please indicate how important it is for you personally that you receive [if you're a boomer]/provide [if you're an elder parent] any of the following as an inheritance.
Surprisingly, "stuff" wasn't at the top of the list. 77% of Boomers and their parents felt that "Values and life lessons" were the most important inheritance. Only 10% of Boomers felt that "financial assets or real estate" were most important while 39% of elders did. Let's rephrase that to be sure it's clear: Elders were four times more likely than their children to believe that money and property were the most important inheritance. Elders vastly overestimate their childrens' expectations of inheriting financial assets and/or real estate.
This is borne out by my experience that many parents even endanger their own financial welfare by attempting to leave too much to the kids. What a shame, if it's not even that important to the kids.

Myth- Fee-only advisers are always better. Part II

A client recently told me that his CPA was "suspicious" of investment advisers who also sell insurance and investments (in other words, me). I could understand that suspicion (that is, superstition) if the "product" were shampoo or pharmaceuticals, for example. But as my first post on this subject proved, the manner in which an adviser is compensated bears absolutely no relationship to the adviser's honesty, competence, or empathy, the three cornerstones of trust. Regardless of how a person is compensated by you, he can still be a crook, a dummy, or a sociopath. Without all three of those cornerstones (honesty, competence, & empathy), an adviser is not deserving of your trust, no matter how she is paid. And regardless of how one is paid, there will always be biases and conflicts of interest. Is it fair for your stockbroker to earn $15,000/yr. on your million bucks (the average) while its value is declining? Is it fair for a fee-"only" adviser to recommend that you use that stockbroker because they have a cross-referral agreement?
Let's look at CPAs and tax preparers for example. Their bias- a substantial one -is to deliver the smallest legal tax bill for the current tax year. That's how they earn your love, one year at a time. But as a result, millions of Americans have created tax time-bombs which will blindside them at the most vulnerable time of their lives: retirement. You hear about wealthy retirees who pay little to no income tax. Wouldn't you prefer that? Naturally. But it takes a long term view, careful planning, and the acquisition of properly structured financial products.  And potentially higher tax bills in the early years of a financial plan.

• So back to the Three Cornerstones of Trust. Let's use an example to see how these characteristics might play out in real life.  Let's say you want advice on asset allocation in your TSA. Your nephew recently got securities licensed. He's thoroughly honest and empathetic. But is he competent? Probably not. 
• So you turn to the adviser you know from church. He's been in the business 25 years and honest to a fault. But he's an egomaniac focused solely on raking in as much cash as possible; entirely legal and ethical under Wall Street rules. But just not very empathetic. Trust him? 
• Finally, you tune in to the latest TV financial guru who is a genius and exhibits such deep caring about you. But looking back, if you had followed his advice two years ago you would have lost 40% of your money. Does he ever mention that on his show? No. Is that honest?  Or competent?

But this really is a moot point about the differences between commission, fee-based, and fee-only advisers. Registered Investment Advisers (RIAs), are held to a fiduciary standard no matter how we are compensated. That means we are legally obligated to diagnose your situation and then find the best solutions for you that we can. The key word there is solutions. The reason I also offer concrete solutions- products & investments -is that it's not enough to just arm someone with a list of great ideas. In that case, usually nothing gets done. The most brilliant solutions in the universe are useless if not implemented! I'm not quite the smartest guy in the room. That's why I always recommend that my clients get input on my recommendations from their CPAs, attorneys, even other advisers.  But I am biased towards action.
I am also biased toward minimizing taxes and fees over my clients' lifetimes.  If they choose to buy a commission-paying product through me then I give a corresponding refund of my fee.  It is a fact that sometimes the very best planning option involves a commission-paying product.  Would it be more ethical of me to charge my planning fee and then refer the client to a broker to buy that product?  Of course not. That would be more expensive for my client.  Most choose to get the planning for free and let the product vendor pay me.  Because ultimately, I may be sitting on the witness stand explaining to a jury why I chose that particular product.  I never want to have to say, "Because it paid me the highest commission."

Supreme Court Myth: Now my chickens can vote

I have already given you the history of how paper fictions- corporations -came to acquire human rights intended only for living, breathing human beings (see the 11/9/09 post). Now, in a radical departure from 100 years of legal precedent, the Supreme Court has given corporations and unions virtually unlimited power to interfere in elections. So now my chickens, or your car, or a forest, or even a bag of hammers can in effect "vote". All you have to do is place them in a corporate shell, dump in some cash, and go buy an election.

Myth: It's Always Best to Consolidate Your IRA Accounts to Lower Fees

Normally, that is true. Most- and I use that word accurately -investors create the illusion of asset diversification by having multiple fund companies or even multiple IRA custodians. But there is so much overlap that the whole shebang is at risk anyway: twenty virtually identical large cap funds held by 5 different fund families still leave you flapping in the breeze of Wall Street hot air. And those unnecessary duplicated fees add up, especially in down or flat markets. So, yes, usually it's a good idea to consolidate as much as possible to reduce or even eliminate fees.
Except in years 2010+. If you earn over $100,000. And are doing a Roth conversion. That's because of a little known provision called "re-characterization". Here's why. Suppose your Traditional IRA is currently worth $100,000 and you decide to convert the whole thing to a Roth in 2010. The entire amount is taxable as ordinary income, but, you get to spread that out over two years. Your tax bill is, let's say, $19,000 each year.
This winter, the market crashes. Again. Your new Roth is only worth $60,000 now. So your effective tax rate is 38/60 or 63%! Oops. Conversion was a bad idea. Well, you can "re-characterize" back to a Traditional IRA at $60,000 & then re-convert to a Roth, thereby reducing your tax hit to $11,400 per year, a savings of $15,200. Cool.
But what if some of your funds did really well? Doesn't matter. You have to re-characterize the whole account.
Therefore, it would make sense to convert to several Roth accounts, each in a different asset class according to the Asset Allocation model you and your adviser designed. Then you get to keep the gainers and re-characterize only the losers.
Sounds more complicated that it is. Easy to do, pays big dividends.

New Company Name- this is not a myth

I got a nasty and obtuse letter from a California attorney threatening all kinds of things if I didn't stop using the name "Silver Sage Advisers". My doing so would apparently cause great harm to his client, who doesn't even do business in Oregon under that name. Not really caring one way or the other, and not wanting to harm anybody, I'm bypassing this battle and have re-registered my investment adviser company (RIA) under the name "Duell Wealth Preservation", which more accurately reflects my main mission anyway.

In a weirdly literal interpretation of Oregon Statutes, the Department of Finance & Corporate Securities (which regulates RIAs) says I must charge fees for my services or I can't be a Registered Investment Adviser. My advisory contract and fee schedule are posted on my website under "Links". Fees are split into three different areas: (1)Assets under management, (2)Flat fee for a comprehensive financial plan, and (3)Hourly fees for specific tasks. With any particular client I charge only one type of fee; there will be no Dagwood sandwiching of fees. I'm not sure how this protects consumers but I'm Mr. Compliance when it comes to the regulatory agencies.

Avoid the most dangerous "predator" of your retirement funds

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20 years ago I and my industry hounded everyone to defer as much income as possible to retirement because one’s income would be less and tax rates lower. Then 10-12 years ago I advised “tax diversification”, half your retirement money should be taxable, half tax-free. That way if your savings plans were successful, and you retired into a higher bracket, you could take the tax-free income first. If your bracket was lower, you could take the taxable income first and let the tax-free portion keep building.

But now several factors have created a perfect storm of big tax increases in the near and long term:

· Current tax rates are the lowest since the 1920’s
· As a % of GDP, the Federal deficit is the highest since WWII
· The boomers will skyrocket demand for Federal entitlements

So regardless of whether your income is lower in retirement we will all most likely pay higher tax rates.  What should you do? Here are my recommendations:

1. If you have a matched retirement plan at work, keep contributing enough to get every matching dollar. That’s free money.

2. If you can still afford to save more, ask your employer about a Roth 401(k).  Employers have been able to do this with 401(k) & 403(b) plans since 1996.

3. If they won’t accommodate you, set up Roth IRAs if your income level qualifies.

4. Convert Traditional IRAs & accessible retirement accounts to a Roth IRA. If your single or joint income exceeds $100,000 you can do this starting in 2010.  This is a perfect time to take the tax hit: low account values and low tax rates.

5. Want to bypass most of the conversion restrictions?  You can do a strategic rollout into other financial vehicles that will be tax-free to you and your kids. Some even have long term care benefits & minimum guaranteed returns built in.  Effective January 1, some previously taxable withdrawals can now be tax free.  And, you can avoid the pre-age-59 1/2 excise tax through reg. 72(t) distributions.

Of course, it is always dangerous to take any action without expert analysis and advice. It’s possible none of this would work for you and could actually be harmful.  Please don't do it yourself.  The first step?  Take my Wealth Index Questionnaire while it is still free.  It takes 15-20 minutes online.  Then when your results are in, we'll spend an hour reviewing them in a face-to-face meeting.

Best Regards always,

Gary