8 to 10% Is A Reasonable Expected Rate of Return

Reminder:  These Financial Myths Headings are Myths.

No.  8-10% is not a reasonable rate of return, even though national investment "superstars" still claim that it is.
Here in Oregon, that point has been driven home . . . again, unfortunately, by Aequitas Management.  The article that follows is long but instructive.  (Thank you Advanced Regulatory Compliance, Inc.!)
But here are the warning signs:

1. They put almost all of their eggs in one basket: notes on Corinthian College loans.  Investors need to understand where their money is going!
2. They issued their own statements.  Never rely on statements issued by your broker/agent/adviser.  Always insist on third party generated statements.
3. They were high-flying.  Take note of what your adviser himself invests in.  Fancy offices & furnishings?  Expensive cars? Jets?  Expensive client events?  You should wonder how those "investments" improve your financial situation.

So, enjoy the article.  I hope you learn something from it!

The Securities and Exchange Commission yesterday charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.  Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm.  Some money from new investors was allegedly used to pay earlier investors

The SEC’s complaint, filed yesterday in federal district court in Oregon, alleges that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse.  Former CFO and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.

“We allege that Aequitas had severe and persistent cash flow shortages and top executives knew they weren’t using money raised from investors like they said they would.  But they refused to disclose the true financial condition, continued to draw lucrative salaries, and roped even more unknowing investors into a losing venture,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. 

According to the SEC’s complaint:

• From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.
• While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges.  Corinthian defaulted on its recourse obligations to Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.
• The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors.  They used the outings to raise more money from investors.  Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.
• By November 2015, Aequitas could no longer meet scheduled redemptions.  Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer.   

The SEC’s complaint charges violations of the federal securities laws by Aequitas Management, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC as well as Jesenik, Oliver, and Gillis.  The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and monetary penalties from all defendants as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company.

Aequitas and the affiliated entities have agreed to be preliminarily enjoined from raising any additional funds by offering and selling securities, and agreed to the appointment of a receiver to marshal and preserve remaining Aequitas assets for distribution to defrauded investors.  The stipulated orders are subject to court approval.

The SEC’s continuing investigation is being conducted in the San Francisco office by Brent Smyth, Crystal Boodoo, and Tracy Combs and supervised by Steven Buchholz.  An examination of Aequitas’s registered investment advisory affiliate, and examinations of other registered investment advisers that recommended Aequitas investments to their clients, contributed to the investigation and were conducted by Thomas Dutton, Bradley Cline, Edward Haddad, Matthew O’Toole, Caroline Smith, Bernice You, Marc Valle, and Alice Schulman.  The SEC’s litigation will be led by Sheila O’Callaghan and Wade Rhyne.

Advanced Regulatory Compliance, Inc. (“ARC”) is a national full-service investment advisory compliance consulting firm backed by its association with The Law Offices of Patrick J. Burns, Jr., P.C., a securities law practice. ARC provides practical solutions to complex compliance issues. Our key services include investment adviser registrations, mock audits, annual reviews, due diligence, development of best practices and ongoing compliance support.  If you have any questions or concerns about this newsletter, please contact our firm at (310) 275-7300.

Your Constructive Comments are Welcome!

All Financial Advisers Are Screened by State and Federal Regulators

I hope it isn't getting too redundant for me to remind you gentle readers that the headings of these posts are MYTHs.  This one is no exception.  Sort of.

Depending on who they work for and the kind of work they do, financial advisers are indeed somewhat screened by regulators.  After all, there are education, training & licensing requirements both up front and annually.
But does this mean that you can just trust any licensed "adviser"?  According to a recent article in Financial Advisor (a Financial Times service), the answer is . . .  "no".  The title of one article appearing in today's issue is, "Half the FAs Fired for Misconduct are Rehired in a Year". (by Alex Padalka).  He goes on to say,  "Getting fired over misconduct doesn’t necessarily mean an advisor’s career is over — in fact, almost half of them are back and advising clients within a year of termination, according to a study cited by WealthManagement.com".  In addition, 8% of FINRA registered advisors have a "disclosure event" on their records.  [I would provide both links but both sites are subscription services]  Finally, they found that "some firms specialize in misconduct and cater to unsophisticated consumers".  Amazing.

If I were looking for an adviser* I would want to use every tool available to screen them.  So should you.  In addition to simple Google searches, here are two essential background check sites:

1. BrokerCheck, and
2. The Division of Finance and Corporate Securities (Oregon)

Your Constructive Comments are Welcome!
*You'll note I spell "adviser" ending in "er" while most places you'll see it spelled "or".  The regulators want us to spell it "adviser".  So I do.

Not a Myth: IRS's Dirty Dozen Tax Scams List Remains Unchanged

It's that time of year when the fresh sprouts of fraud emerge from your composting private information.  One of the best ways to nip fraud in the bud is to overcome your embarrassment and turn in people who rip you off.  Here is the best place to do that, when it comes to your Federal Taxes:
https://www.treasury.gov/tigta/contact_report_scam.shtml

But how do you tell for sure?  As I reported back in August, here is a short list of things IRS will not do.

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

Your Constructive Comments are Welcome!

ADVISERS DON'T MAKE ANY DIFFERENCE

Well, according to a recent survey by John Hancock Retirement Plan Services (as reported by the American Retirement Association) there is "an impressive retirement preparations gap among those who use the services of a financial advisor"(sic) and those who do not.

Here are some stats:

• Regarding 401(k)s, those with advisers were more than twice as likely to be saving the maximum (28% vs. 13%) as those without advisers.
• Those with advisers were more than twice as likely to be ahead or on track in retirement savings (70% vs. 33%).
• And the same for those who knew how much they needed to save to be on track:  33% vs. 14%.
• And yet again with saving for emergencies:  58% with an adviser had emergency funds.  Only 26% of those without advisers did.

The sample size was a very statistically valid 2000.

I take these results with a grain of salt, mostly because they are what I would like to hear.  Based on my own clients, those who are doing well already are also more likely to seek, and follow, my advice.  So it's possible the same is true of the 2000 folks studied by Hancock:  They already suspected they were doing OK but just wanted to be sure that was true, and, to avoid any mistakes.  That is the most often repeated explanation when I ask new clients why they came to see me.  So I don't think we advisers can take all the credit for the better results our clients achieve.

But see how I can make a difference for you:  http://garyduell.com/services/

Your Constructive Comments are Welcome!

ADVISERS DON'T MAKE ANY DIFFERENCE

Well, according to a recent survey by John Hancock Retirement Plan Services (as reported by the American Retirement Association) there is "an impressive retirement preparations gap among those who use the services of a financial advisor"(sic) and those who do not.

Here are some stats:

• Regarding 401(k)s, those with advisers were more than twice as likely to be saving the maximum (28% vs. 13%) as those without advisers.
• Those with advisers were more than twice as likely to be ahead or on track in retirement savings (70% vs. 33%).
• And the same for those who knew how much they needed to save to be on track:  33% vs. 14%.
• And yet again with saving for emergencies:  58% with an adviser had emergency funds.  Only 26% of those without advisers did.

The sample size was a very statistically valid 2000.

I take these results with a grain of salt, mostly because they are what I would like to hear.  Based on my own clients, those who are doing well already are also more likely to seek, and follow, my advice.  So it's possible the same is true of the 2000 folks studied by Hancock:  They already suspected they were doing OK but just wanted to be sure that was true, and, to avoid any mistakes.  That is the most often repeated explanation when I ask new clients why they came to see me.  So I don't think we advisers can take all the credit for the better results our clients achieve.

But see how I can make a difference for you:  http://garyduell.com/services/

Your Constructive Comments are Welcome!

Banks Have Quotas for Filing SARS & CTRs Reports with FinCen.

First, we need a glossary to deconstruct this myth that has been circulating among various conspiracy websites:

CTR- Currency transaction report
FinCEn- Financial Crimes Enforcement Network
SARS- Suspicious Activity Reports

FinCen was created by the Bank Secrecy Act and Anti-Money Laundering legislation.  Obviously, it was designed to prevent criminals from hiding ill-gotten gains.  (Just little annoying criminals, that is.  Criminals that might crimp the style of the really big criminals, like Wall Street banks.)

FinCen does not have quotas for banks to report Suspicious Activities that force the banks to cast about for fresh victims.  Examiners do look for patterns:  why would one bank in the same neighborhood have far fewer suspicious activities than another?  Are they maybe a little too friendly to local drug dealers?  But there is no quota system.


Your Constructive Comments are Welcome!

THE DEVIL IS IN THE DETAILS

This blog heading is colloquially true, especially when it comes to Investment Adviser contracts.  A recent review of compliance violations found- first of all- that 22% of advisers didn't have contracts with their clients.  A contract isn't required unless a fee of some kind is collected from or owed by a client.  So if you are paying a fee of any kind- flat, hourly, percent of assets, performance based -a contract is required.

So what devilish details should you watch for in an advisory contractual relationship?  Here's a short list:

• First and foremost:  The absence of a contract altogether!  Do you really want to work with and pay someone without formalizing rights and expectations on paper?
• Any provision that compensates the adviser based on "a share of capital gains upon, or capital appreciation of, the funds- or any portion of the funds -of the client. (Sec. 205(a)(1) of the Investment Advisers Act).  I see these so-called performance fees in contracts all the time.
• Mandatory arbitration clauses.  These have become so common that the average person doesn't blink an eye signing them.  By doing so, you're giving up- in most cases -the right to sue individually or to be party to a class action against the adviser.  My contract only has a voluntary mediation clause; we agree to sit down and talk about a dispute before consigning our souls to the lawyers.  Never had to use it.
• Be aware of with whom it is you're actually contracting.  Is it the adviser himself or some obscure LLC or other obfuscatory entity that your adviser can hide behind?  My clients contract with me, and only me, directly.

Your Constructive Comments are Welcome!

I CAN'T AFFORD TO SAVE ANY MONEY THIS YEAR

The heading of this post is, as usual, a myth.  You can save money this year.  Thanks to WealthManagement.com for some of these tips:

1. I think all parents of college-bound kids are aware of the FAFSA.  There is no charge for this application for student aid.  And the early bird gets the worm; funds are limited.
2. Start or increase your 401(k) contributions, especially if you're not taking full advantage of  company matching.
3. Consider Traditional or Roth IRA contributions, especially for non-working spouses and your kids.  If your kids have earned income, the full amount (up to $5500) can be shunted into a Roth IRA.  IRA planning is complex and the best strategies depend on a careful analysis of your retirement expectations.
4. Max out Health Savings Account contributions ($3350 for singles, $6650 for couples and families).  As with IRAs if you're over age 50 you can kick in an extra $1000/yr.  This money can be triple tax free!:  Contributions are deductible, earnings are tax-deferred, and withdrawals are tax-free if used for legitimate medical expenses (see IRS pub. 969).
5. If you did a Roth conversion at the peak of the market in 2015, you have until 10/15/2016 to re-do it.  If your Roth is worth less than when you converted, you un-convert or "recharacterize" it, and then reconvert at the lower value thereby reducing your tax bill accordingly.
6. Have a neutral, unbiased, fiduciary adviser (like me) analyze the fees and expenses in your portfolio.  This is especially important in the later years when you should be conservatively allocated because taxes and fees from excessive turnover can consume your earnings. 

Your Constructive Comments are Welcome!

Self Regulatory Organizations Always Police Their Industries Well

Well of course that's not true.  None of them do, from the FCC to the SEC.  But some do a better job than others.
FINRA (the Financial Industry Regulatory Authority) seems to do a fair job considering their financial and political constrictions, as you can see below.  But out of 637,000+ brokers, they only examined 4500.  Or about 7/10 of one percent.  More instructional is the cases of theft and deception committed by specific brokers.  They're instructional because they all could have been prevented by more aware investors.
I invite you to explore their website at finra.org



Your Constructive Comments are Welcome!

Seven Steps for Making Identity Protection Routine

Ok, this is NOT a myth.  These steps come verbatum from the ever-helpful IRS.

RS Security Awareness Tax Tip Number 3, December 7, 2015                                Español

The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are seven steps you can make part of your routine to protect your tax and financial information:

1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.)  I would add that it pays to turn on notifications on your credit cards, especially for "credit card absent" charges.
2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked.
3. Review each of your three credit reports at least once a year. Visit annualcreditreport.com to get your free reports.
4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account at www.SSA.gov.  It's also important to check for zero earnings years when you did in fact receive wages.  That means your employer failed to report, and pay, payroll taxes.
5. Read your health insurance statements; look for claims you never filed or care you never received.  And you might also contest charges that you feel are excessive.
6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash.  Check my Event Schedule at www.garyduell.com for our annual Document Shredding and Identity Protection event.  The next one is this coming May.
7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice.  Even though a physical check may feel more secure, it isn't!

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

• IRS Commissioner Koskinen's Statement on the Security Summit Group Public Awareness Campaign 
• Taxpayer Guide to Identity Theft
• Publication 5027, Identity Theft Information for Taxpayers
• www.irs.gov/identitytheft -- Identity Protection: Prevention, Detection and Victim Assistance
• IR-2015-129, IRS, States and Tax Industry Announce New Steps to Help Public to Protect Personal Tax Data  
• Fact Sheet 2015-23, IRS, States and Industry Partners Provide Update on Collaborative Fight Against Tax-Related Identity Theft    
• IRS and Partner Statements on the October 2015 Security Summit Meeting

IRS YouTube Videos:

• Taxes. Security. Together. – English
• IRS Efforts On Identity Theft – English| Spanish| ASL
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish | ASL
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish | ASL

IRS Podcasts:

• IRS Efforts on Identity Theft – English | Spanish
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish\
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish

Subscribe to IRS Tax Tips

Your Constructive Comments are Welcome!

I Can Just Wait Until May to Revise My Social Security Strategy

Yes, you can wait.  But, unless changes made before 5/1/2016 to the "Social Security Benefit Protection and Opportunity Enhancement Act of 2015*" , you may regret waiting, especially if you have one of the key birthdays coming up.

But first, what provisions of Social Security did Congress not change?

• The way in which benefits are calculated, based on earnings history, are unchanged.
• The computation of worker, spousal & survivor benefits is the same.
• The penalties and credits for early or delayed claiming are the same.

The major changes:

• If you are 62 or younger after 12/31/2015 you will no longer be able to receive spousal benefits and then switch to your own later.  If you turn 62 by the end of this year, then you are grandfathered in to the current rule.
• If you turn 66 before 4/30/2016 you may want to file and suspend before then, just in case you need to have file later, for example, for your spouse to file restricted.

Your Constructive Comments are Welcome!

*Title VIII of the Bipartisan Budget Act of 2015

Congress Just Helped Save Social Security (not)

The sunny name of the Bipartisan Budget Act of 2015 belies the fact that it unnecessarily guts important provisions that benefit both married and divorced spouses.  AARP estimates that only 1/10 of one percent of eligible Americans take advantage of these provisions.  But, even if every single eligible beneficiary maximized the use of timing strategies, the effect on the Social Security trust fund would amount to less than 1/2 of one percent.  Even if Social Security were part of the Federal budget (it isn't) or, even if the Social Security trust fund were in trouble (it isn't) this change will have insignificant budgetary benefits but devastating consequences for many couples and divorced spouses.  This amounts to senior abuse.

Before they approved this nonsensical bill, the Senate did soften it a bit with two amendments:

• It does not take effect until 5/1/2016*
• Certain provisions are grandfathered in for those age 62 or older.

I suspect, and hope, that before 5/1/2016* Congress will incur enough outrage that they will also fix the divorced spouse benefits and perhaps even all timing strategies.
Regardless, it is imperative that you:

1. Meet with me or call to see how this law- in its current form -could change your strategy
2. Contact your Congressional representatives & prevail upon them to fix this mistake:  http://www.congressmerge.com/onlinedb/

Best Always,
Gary Duell

Your Constructive Comments are Welcome!
*I must confess a previous version of this post had a typo in both of these dates.

You Can Wait Until You Are 62 To Plan How to Take Social Security Benefits

The title of this post isn't a myth.  It's true.  You can wait until age 62.  It's just a bad idea.  If you are 50, you may still have time to start working on an ideal cash flow plan for your 60's & 70's.

I know.  So much can change over 10, 20 years.  And a well crafted cash flow plan will be organic and fluid, as it should be.  Why start so early in life?  So you don't leave free money on the table.  And to decrease the discipline required to make the plan work.

A cash flow plan becomes more important if you may be subject to longevity risk (outliving your money).  I suggest you use this calculator at Life Expectancy  I took the questionnaire and my life expectancy is 88, higher than I imagined.  For benefit timing strategies under current law, the break even age for delaying Social Security averages 8-12 years at age 70.  In other words, if your life expectancy is longer than 78-82 then you should prepare for benefit timing strategies.

"Can you give us an example about why and how a 50 yr. old would need to start Social Security planning?" you wisely ask.  I'm glad you asked.  Sure.  I wish I had the skill to show this graphically.

Assumptions:

1. Current age 50
2. Life expectancy is 85
3. Expected budget at planned retirement age of 65 is $5000/mo. in today's dollars
4. Expected retirement year budget inflated at 3.3%/yr.:  $8137/mo.
5. Social Security break even age is 78.  This means that by waiting until 70 to turn on Social Security, your delayed retirement credits will have increased your benefit by 24%. So by 78, the income that you lost by waiting is fully recovered.  After that, you're money ahead.
6. Expected guaranteed income at 65:  $5000/mo.
7. Income gap at 65:  $3137/mo. (8137 - 5000).  And let's assume Social Security will make up that gap at 70.
8. Total funding shortfall, with inflation, age 65-70:  $201,059.

So here would be my plan:

1. Set aside enough per month (including any employer matching, if applicable), before tax to accumulate the $201,059.  At 6% APR, this would require about $691/mo.  Use a true target date fund with at least quarterly automatic rebalancing.
2. At 65, roll this into an IRA annuity that guarantees the inflation adjusting $3137/mo. you'll need at 65.  This way you avoid sequence of returns risk.  You will also be spending down taxable money at a low tax bracket.
3. Save as much as you can in after tax vehicles like Roth IRAs, Roth 401(k)s, real estate, that may give you tax-free income beyond age 70, which will likely be your highest tax bracket years.

Every detail here depends on individual circumstances, ever changing tax regulations and many other factors.

Your Constructive Comments are Welcome!

Congress is Gutting Social Security Benefits!!

By now it seems to be common knowledge that Congress is intent on "fixing" the Social Security "loopholes" created by themselves with the obnoxiously titled "Senior Citizens' Freedom to Work Act of 2000" (what we really need is a bill titled "Congressional Freedom to Resign Act of 2016").
The "Bipartisan Kumbaya* Budget Act of 2015" aims to eliminate benefit timing strategies** for married couples.  The reasoning is essentially two-fold (1) It is primarily the "wealthy" who take advantage of these strategies.  Therefore eliminating them won't hurt the poor.  And (2) This needs to be done to protect the solvency of Social Security.  Here are my random thoughts about that reasoning:

• If regulations allowed Social Security employees to demonstrate timing options to new beneficiaries, more lower income folks would probably take advantage of them.  The issue isn't wealth as much as it is which people are able to get expert advice.
• I've ceased being amazed at how easily so-called business & public policy experts sidestep the revenue half of the Social Security equation.  If they were on the board of a private corporation and budget shortfalls loomed, they would be asking "How can we increase revenue?"
• Social Security is not part of the budget!  It is a separate insurance program funded separately by separate payments from workers.  Separate.  If they're seeking budget solutions, they should be looking at the budget.

The title of this post Congress is Gutting Social Security Benefits!! is a myth because the new provisions are more like a slap to the face of retirees than a genuine evisceration.  The key is, this law is not in effect for six months.  There is still time to appeal to your Senators and Representatives to truly enhance Social Security.

Your Constructive Comments are Welcome!

*Just kidding.  The term "Bipartisan" is an attempt to imply a nonexistent legislative hug fest.  Title VIII of the act will be magnanimously named the "Social Security Benefit Protection and Opportunity Enhancement Act of 2015".  I'm not making that up.  I'll go through the details of Title VIII in another post.
**Most notably, the rather terse Subtitle C, Sec. 831 "Closure of Unintended Loopholes".

12 Worst Financial Advisers in America

Sadly, this heading is not a myth.  Thank you to Producer's Web for compiling this list, not to be cynical, but to be instructive in paying attention to danger signals.

http://www.producersweb.com/r/pwebmc/d/contentFocus/?pcID=a8153d49783e8261086671c87cc329c8&pn=1


Your Constructive Comments are Welcome!

You Should Always Name a Family Member as Your Personal Representative**

Until a recent death in the family abruptly dragged me into the executor/executrix ("Personal Representative" in Oregon) world, I had no clue how humongous and complex a job you assign to someone by making them your Personal Representative in your will. ORS 114 gives you a pretty good idea.

I did not know, for example, a Personal Representative must comply with these two requirements:

1. You are required to hire an attorney
2. As of 2/2/2015 you are required to take a "Non-Professional Fiduciary Education & Training" course within 60 days of being appointed as Personal Representative by the court.

And there's more.  As Personal Representative:

• You must immediately take possession of all decedent's assets & file an inventory- including estimated values -with the court within 60 days.  This may not be a fun job if significant property is on "loan" to friends or family.
• You must not commingle the decedent's assets with your own or anybody else's.  So don't transfer that bank account to yourself just yet (unless you are a TOD beneficiary).
• You cannot loan estate money to anyone without the court's approval.  And never to yourself.
• You must set up a separate checking account in the name of the estate & keep detailed records of every deposit and disbursement
• If you pay certain documented estate expenses out of your own pocket, such as funeral expenses, you may reimburse yourself from the estate.  If you were owed money by the decedent, you can't pay yourself without written permission from the court.
• You can't give estate property to anyone without permission from the court.
• You have the authority to ""discontinue and wind up any business or venture in which the decedent was engaged at the time of death" (114.305(23).  Since your primary obligation is to preserve and enhance the value of the estate, what if you unwittingly unwind a profitable venture that might continue adding cashflow to an estate?

Having dug deeper into the role of Personal Representative, I recommend that you:

• Give careful thought about who you know that can be trusted, competent and willing to go through all this.
• Possibly designate a lawyer and/or other professionals (CPA, investment adviser, realtor) to work with your Personal Representative.

Your Constructive Comments are Welcome!

**The furthest intention of this post is to be legal advice.  It is not, nor intended to be.  It is no more than the conveyance of the author's personal experience and layman's view of the ORS.  Consult with your estate planning attorney in all such matters.

Why the Fed Won't Raise Interest Rates This Week, But Who Would Win If They Did

Before we step into this Alice-In-Wonderlandish warehouse of paranoia and mystery, I'll give my opinion on the second topic in this post title, which is not a myth by the way.  So far.

Who wins when the Federal Reserve raises the short term rate it charges banks?  (And that's an important point; the Fed doesn't- and can't -alter the rate you pay on your mortgage, credit cards or car loan.  It can only raise the overnight rate banks earn or pay, as the case may be, on their surplus or short balances.  The current rate is 0.25%.).  Historically, and oddly, big banks, brokerages and insurance companies win when short term rates rise.  Suppose the Fed triples the Fed fund rate from 0.25% to 0.75%.  Although still essentially zero, borrowers become psychologically fertile for similar rate increases.  "Oh, the Fed tripled interest rates!  But my bank only raised my credit card rate from 8% to 12%.  Lucky me".  So rather than suffering from an increase in short term rates, the big lenders actually cash in.  That's my theory, anyway, and that's why I think there is substantial pressure from that community on the Fed to raise its rate.

Theoretically the Fed only raises rates in the face of an improving economy to moderate the effects of inflation.  We don't really have an improving economy.  And we certainly wouldn't have one if the cost of capital increases right now.  So no rate increase this week.

Your Constructive Comments are Welcome!

There is One Best Trick for Maximizing Social Security Benefits

Do you get a lot of emails with the words "trick", "weird" "secret", "epic" and so on to the ends of hyperbole & hubris?  I do.  So I remind you again that the title of this blog- like all my titles -is a big, fat MYTH.  There are two moving parts to Social Security benefit optimization:

1. Social Security regulations, and,
2. Your life

And the most important part of that equation is Your Life, more specifically:

• Your age
•   
• Your marital status
• 
• Your current and future budget
• 
• Your past, current and future income sources
• How long and how much you expect to keep working
• 
• Your current health & genetic health history
• 

Social Security is an important but relatively small puzzle piece.  It's worth a $25, ninety minute class and a free hour with me to be sure you have an unbiased and holistic picture of your future.

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The Best Annuities are Always the Best

Barrons magazine regularly publishes their "The Best Annuities" article but without the most important caveat:  these products vary wildly state by state, even if they have the same name.  Different states allow- or require -varying policy provisions.  Oregon is one of the most strict; if bonus, guaranteed rate or other contract provisions appear too generous to be supported by the company's long term financial outlook, the Oregon Dept. of Insurance will make the annuity company change those provisions.  As a result, national publications can be a misleading source of comparisons.  "The Best" must be compared in each state.
However, the article is close.  Indeed, for guaranteed income, Allianz, American Equity and American General (AIG) are the current income kings and I use them almost exclusively.  The table in the article is inaccurate.  For most retirement age brackets, AIG trumps the others.  Which is another caveat:  contract provisions vary by age and gender too!  So the only solution is to have someone like me do a market comparison for you.

Gary


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Sometimes The Best Action is Inaction

This is one of those interesting post titles that is both true and a myth, depending on who is reading it.  Hence the danger of mass financial advice directed at the "average person".
 
As a fan of Vanguard and it's founder, John Bogle, I want to share their recent timely article on market volatility.  And I also must add my caveat about rules of thumb and averages.  Here's the link to their three "Rules", which I'll summarize and supplement below:
https://personal.vanguard.com/us/insights/article/market-volatility-082015

Rule #1- Recognize that volatility and periodic corrections are common in equity markets.  You'd have to be Rip VanWinkle to not be aware of this rule.  Most of us are painfully recognizant of the roller coaster ride.  And I would add bond markets too because as we saw in 2009 they are no longer the safe hedge against equity risk.  Hell, any market these days, whether it's real estate or precious metals, is volatile because of the craziness with which investors are chasing returns.

Rule #2- Tune out the noise and remove emotion from investing.  I'm on board with this.  The two most common- and destructive -investor motivators are (1)Fear and (2)Greed.  A realistic, well conceived Cash Flow Plan should be primary.  As an adviser who constantly seeks to understand what has happened and will happen in the markets, I'm weary of all the retroactive blather from my colleagues claiming to explain the past while failing to predict the future.  So yes, tune out the noise.
But I also believe emotions must be taken into account.  Life is more than a math problem.  It is more than just getting as much as you can.  It is more than a fancy pie chart.  A good adviser will use a process to ferret out and give shape to clients' true feelings about their situation and the future and then build a plan accordingly.  The goal should be to feel safer and happier!

Rule #3- Make volatility work for you.  This rule appears to be directed at younger investors who have time to dollar cost average into the market.  At least it had better be, because for the retiree drawing down assets, volatility is a retirement killer due to sequence of returns risk.  To apply this rule to retirees it should be stated as "Keep volatility from destroying you".  Here's the difference and how to avoid getting stung by volatility in both cases:

• Dollar cost averaging for Accumulators- By investing the same fixed amount every month, volatility becomes your buddy.  When, for example, a fund costs $100/share this month and you are investing $500/mo. you'll buy 5 shares this month.  But if the fund price drops to $50 next month, hurray!  You buy 10 of the now cheaper shares.  If the price then rises to $250 three months from now, you only buy 2 shares.  So dollar cost averaging neutralizes the two destructive investor emotions, fear and greed, by making you act counter to your intuition:  when shares increase you buy fewer, when they decrease you buy more.  Dollar cost averaging alone can increase your returns 30% or more over the long term.  But, there is . . .
• Sequence of Returns risk for Decumulators- On the other hand, if you are decumulating you need to adopt the opposite tactic.  Instead of a fixed dollar amount you should withdraw only a fixed percentage of your total assets.  That way when the market is down your withdrawals will be less, when it's up you can take out more or- better yet -leave more in the market for further growth.  Why this is important:  Imagine a 57% decline in your retirement account in the same year that you've also taken out 5% to meet your budget.  To recover, you would need a 263% rate of return the following year!  Which is impossible.  This is why losses in the early years of retirement must be avoided, unless you have excess assets you can leave untouched for at least 10 years.  Unnlike Vanguard's "inaction plan", in this case it is absolutely not "okay to ignore volatility".

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RELAX, IRS has eliminated Fraud

Wish this was true, but it's yet another Financial Myth.  You can read the whole article here, or, my abridged version below.
http://www.irs.gov/uac/Newsroom/IRS-Warns-Taxpayers-to-Guard-Against-New-Tricks-by-Scam-Artists

It's good to know the 5 things IRS will not do:

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

If someone attempts to fool you in this manner, immediately turn them in at http://apps.irs.gov/app/scripts/exit.jsp?dest=https://www.treasury.gov/tigta/contact_report_scam.shtml

Best Always,

Gary
Your Constructive Comments are Welcome!