“It depends on what the meaning of the word ‘is’ is.”
Bill Clinton, August 17, 1998 grand jury testimony.
The SEC charged Goldman Sachs & Co. with fraud on April 16th. It gets a little complicated (as these stories usually do these days) but basically Goldman was hired by a hedge fund, Paulson & Co., to create a collateralized debt obligation (CDO) pool so Paulson could “short” or bet against it. Goldman then took the investment and sold it to its retail clients, knowing the hedge fund’s plan and the likelihood that the CDO would drop in value. The SEC contends that Goldman should have disclosed the conflict. Goldman, and many others writing commentary about the case, say that this is the way the market works – Goldman technically did nothing illegal.
This case is a great illustration of what is wrong with Wall Street.
If we expect every transaction we enter into with a Goldman Sachs, Merrill Lynch, Morgan Stanley, and all the other firms to be a cat and mouse game of ‘What are you NOT telling me?’ then how can investors ever be sure that they are going into a transaction with all the facts on the table? If every interaction with your financial advisor was subject to the measurement of whether what they were doing was “technically” illegal or not, how comfortable would you feel?
Many years ago investment banking and brokerage firms were partnerships, and the managers invested their own money along with their clients. As publically traded corporations, they became larger and larger, and lost sight of their original objectives: serve the client first and foremost. Now their financial incentives are structured to encourage short-term profits for incentive bonus plans and risk taking to increase the possibility of big rewards. If they’re right, they win. If they’re wrong, we lose.
As legislative debate drags on in Congress over Senator Dodd’s financial reform bill, we may have missed the best opportunity to cut through the legal rationalizations and protect the consumer. The original bill required a fiduciary standard of care for ALL financial advisors. That would mean that EVERYONE would have to act in the best interest of his or her clients at all times. Instead, the revised bill requires the SEC to conduct another study on the various effects of extending the fiduciary standard to brokers.
It’s amazing what some people can rationalize away sometimes.
Jeannette A. Jones, CPA, CFP ®
jjones@taaginc.com
http://www.taaginc.com/
Monday, April 26, 2010
Monday, April 19, 2010
Lose Weight, Look Great & Get Rich Today!
I can admit to being, at times, a yo-yo dieter. There was a 3 year stint on Atkins. A program where I drank shakes all day and ate Lean Cuisines and salad at night. That went on for about 6 months. Low-fat, low-carb, high-fiber, cabbage soup, grapefruits; you name it, I’ve tried it. If you flip through infomercials or look around online for more than 20 minutes, you’ll find the opportunity exists to spend hundreds if not thousands of dollars on fast and easy ways to a fitter, trimmer you.
Most of these gimmicks end up the same, a lot of initial bang for your buck followed by disappointing long term results. It turns out it’s very difficult to go your whole life without eating a piece of bread and even harder to exist on 1,000 calories/day for more than a few months. Who knew?
What’s the diet industry doing? Selling you a short term solution to a long term problem. By the time you realize that the program doesn’t work, they’ve already cashed the check and are on to developing the next product to sell you. In the long run, the only thing that gets any lighter is your wallet. Spending millions to make billions selling an expertise they don’t have in the first place.
The very same thing exists in the financial services industry. Only in this case, the stakes are often much, much higher. CNBC, the Wall Street Journal, countless magazines and newsletters all full of advertisers promoting one thing; hand over some money and you’ll get rich. It will be easy, you won’t have to be patient and, of course, it’s a sure thing!
How do you get to a fitter, trimmer you? You eat less and work out more. You skip the desserts, control the portions, and get to the gym or out on the walking or bike trail more often. Short of maybe a gym membership, your cost is nothing. In the last six months, I’ve started a new fitness regimen and started cutting little things out here and there. My progress? Not as quick as I’d like it to be, but slowly the pounds are coming off and the strength and endurance tolerances are rising. I’ve always known this is the right way to go, we all do, it has just never had the instant gratification appeal of the other sales pitches. That said, none of the other pitches worked in the end. My new plan, on the other hand, seems like something I can stick with in the long run, is not too restrictive and I’ve surrounded myself with people who will keep me honest and support me through the good days and the bad.
How do you achieve a successful, long term investment experience? You invest in as broad and diversified a portfolio as you can across domestic, international, small and large companies. You invest your fixed income portion in cash and extremely high quality, short term bonds so that your “safe” money behaves as advertised. There will be good times, there will be bad. But, rather than spend your money on gimmicks or fads, put it towards building a support team with your interests in mind that can help you build your plan and then keep you on track throughout your investment horizon.
Be it your diet or your finances, it is always important to keep in mind who is delivering a message and what their incentive is in delivering that message. If the diet and financial services industries are willing to spend millions of dollars to make sure you listen to them, do you think the advice they offer is in your best interests out of the kindness of their heart? The bottom line, in both cases, is they’re selling a product and an expertise they don’t have, playing on our desire for an easy answer, a quick fix, a golden egg. Turn off the noise and ignore what you know will not work in the end. Eat less, workout more, stay invested, diversified and rebalance when needed. The results won’t always be as exciting, but your goals for physical, emotional and financial fitness will be met.
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
Most of these gimmicks end up the same, a lot of initial bang for your buck followed by disappointing long term results. It turns out it’s very difficult to go your whole life without eating a piece of bread and even harder to exist on 1,000 calories/day for more than a few months. Who knew?
What’s the diet industry doing? Selling you a short term solution to a long term problem. By the time you realize that the program doesn’t work, they’ve already cashed the check and are on to developing the next product to sell you. In the long run, the only thing that gets any lighter is your wallet. Spending millions to make billions selling an expertise they don’t have in the first place.
The very same thing exists in the financial services industry. Only in this case, the stakes are often much, much higher. CNBC, the Wall Street Journal, countless magazines and newsletters all full of advertisers promoting one thing; hand over some money and you’ll get rich. It will be easy, you won’t have to be patient and, of course, it’s a sure thing!
How do you get to a fitter, trimmer you? You eat less and work out more. You skip the desserts, control the portions, and get to the gym or out on the walking or bike trail more often. Short of maybe a gym membership, your cost is nothing. In the last six months, I’ve started a new fitness regimen and started cutting little things out here and there. My progress? Not as quick as I’d like it to be, but slowly the pounds are coming off and the strength and endurance tolerances are rising. I’ve always known this is the right way to go, we all do, it has just never had the instant gratification appeal of the other sales pitches. That said, none of the other pitches worked in the end. My new plan, on the other hand, seems like something I can stick with in the long run, is not too restrictive and I’ve surrounded myself with people who will keep me honest and support me through the good days and the bad.
How do you achieve a successful, long term investment experience? You invest in as broad and diversified a portfolio as you can across domestic, international, small and large companies. You invest your fixed income portion in cash and extremely high quality, short term bonds so that your “safe” money behaves as advertised. There will be good times, there will be bad. But, rather than spend your money on gimmicks or fads, put it towards building a support team with your interests in mind that can help you build your plan and then keep you on track throughout your investment horizon.
Be it your diet or your finances, it is always important to keep in mind who is delivering a message and what their incentive is in delivering that message. If the diet and financial services industries are willing to spend millions of dollars to make sure you listen to them, do you think the advice they offer is in your best interests out of the kindness of their heart? The bottom line, in both cases, is they’re selling a product and an expertise they don’t have, playing on our desire for an easy answer, a quick fix, a golden egg. Turn off the noise and ignore what you know will not work in the end. Eat less, workout more, stay invested, diversified and rebalance when needed. The results won’t always be as exciting, but your goals for physical, emotional and financial fitness will be met.
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
Monday, April 12, 2010
The Peril of Prognositcation
(From Dan Solin’s blog, Huffington Post, April 6, 2010)
Changing the way investors approach investing once seemed like a difficult task. This is no longer true.
The meltdown of the securities industry, and the 2008 market crash, caused even the most die hard advocates of investing as usual to question the current system. They should since it has nothing to support it beyond massive advertising and lobbying budgets. Unfortunately, for many investors, that is enough to keep them in the fold, often to their great detriment.
The current model is built on the demonstrably false premise that brokers and advisers have superior insights into the markets which permits them to manage our money intelligently. This "expertise" is touted in the endless predictions of "financial experts" who peer into their crystal ball and tell the unwashed masses what the future will bring. While Jim Cramer is the best known in this group, there are many others, including James Dines, Bob Brinker, Gary Shilling and Louis Navellier.
Now there is some objective accountability for these predictions. It is a welcome development and a valuable service to the investing public. A scorecard calculating the accuracy of market predictions can be found on the web site of CXO Advisory Group. The analysis covers more than two years, with over 4600 measurements for 51 gurus.
The overall accuracy of the group was a pathetic 48%. You could replicate this performance by flipping a coin.
Cramer had a score of 46%. He strongly objected to the methodology used to rate him. The exchange of e-mails between him and the CXO group is fascinating. You can read them here. Make your own decision about the merits of this debate. I do have to wonder how many investors relied on this comment, which he is quoted as making on October 1, 2007: "I'm now confident that what would have been a given in 2008, a brutal recession...will now be avoided and prosperity assured."
Relying on financial "experts" who purport to be able to predict the future is insidious. Not only are they as likely to be wrong as right, but listening to them distracts investors from demanding long term historical data which -- while also not predictive -- would give them an objective basis to make investment decisions.
Instead of asking advisers (who are only too willing to respond) "where do you think the market is headed", investors would be far better served by insisting on answers to these questions:
What is the long term (10-50 years) risk and return data for the portfolio you are recommending?
How do these risk and returns compare to a comparable portfolio of low cost stock and bond index funds?
If your broker or adviser is recommending individual stocks, ask her this zinger:
A recent study examined the stock picking skill of 2100 fund managers over a 32 year period and concluded that only 0.6% beat the relevant index (which the authors of the study attributed to luck). Are you in the 99.4% of stock pickers with no skill or the 0.6% of stock pickers who believe they have stock picking skill?
Then run for the door!
Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
Changing the way investors approach investing once seemed like a difficult task. This is no longer true.
The meltdown of the securities industry, and the 2008 market crash, caused even the most die hard advocates of investing as usual to question the current system. They should since it has nothing to support it beyond massive advertising and lobbying budgets. Unfortunately, for many investors, that is enough to keep them in the fold, often to their great detriment.
The current model is built on the demonstrably false premise that brokers and advisers have superior insights into the markets which permits them to manage our money intelligently. This "expertise" is touted in the endless predictions of "financial experts" who peer into their crystal ball and tell the unwashed masses what the future will bring. While Jim Cramer is the best known in this group, there are many others, including James Dines, Bob Brinker, Gary Shilling and Louis Navellier.
Now there is some objective accountability for these predictions. It is a welcome development and a valuable service to the investing public. A scorecard calculating the accuracy of market predictions can be found on the web site of CXO Advisory Group. The analysis covers more than two years, with over 4600 measurements for 51 gurus.
The overall accuracy of the group was a pathetic 48%. You could replicate this performance by flipping a coin.
Cramer had a score of 46%. He strongly objected to the methodology used to rate him. The exchange of e-mails between him and the CXO group is fascinating. You can read them here. Make your own decision about the merits of this debate. I do have to wonder how many investors relied on this comment, which he is quoted as making on October 1, 2007: "I'm now confident that what would have been a given in 2008, a brutal recession...will now be avoided and prosperity assured."
Relying on financial "experts" who purport to be able to predict the future is insidious. Not only are they as likely to be wrong as right, but listening to them distracts investors from demanding long term historical data which -- while also not predictive -- would give them an objective basis to make investment decisions.
Instead of asking advisers (who are only too willing to respond) "where do you think the market is headed", investors would be far better served by insisting on answers to these questions:
What is the long term (10-50 years) risk and return data for the portfolio you are recommending?
How do these risk and returns compare to a comparable portfolio of low cost stock and bond index funds?
If your broker or adviser is recommending individual stocks, ask her this zinger:
A recent study examined the stock picking skill of 2100 fund managers over a 32 year period and concluded that only 0.6% beat the relevant index (which the authors of the study attributed to luck). Are you in the 99.4% of stock pickers with no skill or the 0.6% of stock pickers who believe they have stock picking skill?
Then run for the door!
Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
Monday, April 5, 2010
Planning Now Will Help You and Your Family Later
Thinking about who will care for us as we age is similar to estate planning. It’s something we all know we should do, but it’s an easy topic to avoid. By planning ahead, you can help your family avoid the unnecessary angst in making decisions on your behalf and preserve your retirement assets.
According to a 2008 Cost of Care Survey by Genworth Financial, if you choose to self-insure and live in Ohio, be prepared to pay an average of $173 per day for a semi-private room in a nursing home, $2932 per month for assisted living, or $14,040 annually for a home health aide to come into your house three times a week for five hours each visit.
Purchasing long term care insurance is another option. It is important to purchase coverage when you are healthy so you are eligible for coverage and your premiums will be lower. My father learned this lesson the hard way. He is a retired civilian engineer with the Air Force. Several years ago the government offered long term care insurance to employees and retirees with no medical underwriting if they signed up during the initial enrollment period. Because his parents were in their 80’s and in good health and he had no medical issues, he ignored my recommendation to sign up for the plan. Within a year he was diagnosed with rheumatoid arthritis. He then tried to apply for the plan and was declined. Ironically, my 97 year old grandfather just passed away in January after spending the last 4 months of his life in a nursing home.
Many people live into their 80’s and 90’s today. This is precisely why you need to make sure you have a plan to cover any treatment you may need whether at home or in a nursing home. Medicare does not pay for custodial care, which is non-medical help you may need with things like bathing, dressing or meal preparation and Medicaid will only cover custodial care in a nursing home.
The recently passed health care legislation does have a provision called The Class Act which created a federal long term care insurance program available to individuals through their employers beginning in January, 2011. This may be the best option for currently employed individuals who are unable to obtain private coverage due to their health. The plan will provide a daily cash benefit which can be used to purchase the assistance needed such as in-home care.
Whether you choose to self-insure or purchase protection, the most important thing is to make sure that you have a plan in place.
Chris Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
According to a 2008 Cost of Care Survey by Genworth Financial, if you choose to self-insure and live in Ohio, be prepared to pay an average of $173 per day for a semi-private room in a nursing home, $2932 per month for assisted living, or $14,040 annually for a home health aide to come into your house three times a week for five hours each visit.
Purchasing long term care insurance is another option. It is important to purchase coverage when you are healthy so you are eligible for coverage and your premiums will be lower. My father learned this lesson the hard way. He is a retired civilian engineer with the Air Force. Several years ago the government offered long term care insurance to employees and retirees with no medical underwriting if they signed up during the initial enrollment period. Because his parents were in their 80’s and in good health and he had no medical issues, he ignored my recommendation to sign up for the plan. Within a year he was diagnosed with rheumatoid arthritis. He then tried to apply for the plan and was declined. Ironically, my 97 year old grandfather just passed away in January after spending the last 4 months of his life in a nursing home.
Many people live into their 80’s and 90’s today. This is precisely why you need to make sure you have a plan to cover any treatment you may need whether at home or in a nursing home. Medicare does not pay for custodial care, which is non-medical help you may need with things like bathing, dressing or meal preparation and Medicaid will only cover custodial care in a nursing home.
The recently passed health care legislation does have a provision called The Class Act which created a federal long term care insurance program available to individuals through their employers beginning in January, 2011. This may be the best option for currently employed individuals who are unable to obtain private coverage due to their health. The plan will provide a daily cash benefit which can be used to purchase the assistance needed such as in-home care.
Whether you choose to self-insure or purchase protection, the most important thing is to make sure that you have a plan in place.
Chris Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
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