(from Dan Solin's Huffington Post blog, 7/12/2011 - click here for the original post)
It's bad enough that Ponzi schemers continue to thrive. The limits these schemers will go to get your money know no bounds. According to a recent report, three former members of the PTA used their connection with a grade school in Los Angeles to bilk investors out of $14 million. The women allegedly represented they had the exclusive right to sell products from a local dairy to various Disney enterprises and others. They promised returns of up to 100 percent.
40 investors used their life savings and took out second mortgages to pony up their "investments." According to investigators, some of the money was spent on vacations, hotels, cars and gambling.
In another scheme, Christopher Pettengill pleaded guilty to a variety of fraud charges. He was charged with concealing information from investors about a foreign currency program, while touting the investment as low risk. Mr. Pettengill admitted making a personal credit card payment of $11,369 from proceeds of the fraud.
These schemes share a common theme: The promise of high returns without commensurate risk. But even if you are too smart to fall for this kind of scam, your investments may still be in danger. You need a morality litmus test before you entrust your retirement savings to any broker or adviser.
A timely case in point is J.P. Morgan Securities. In a release dated July 7, 2011, the SEC charged this venerable firm with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating "millions of dollars in ill-gotten gains." According to Robert Khuzami, Director of the SEC's Division of Enforcement, "Municipal issuers and investors didn't stand a chance against the fraudulent strategies JPMS and others used to guarantee profits."
JPMS settled these charges by paying $51.2 million which will be returned to the affected municipalities and $177 million to settle parallel charges brought by federal and state authorities. As is typical in these matters, JPMS neither admitted nor denied the allegations in the complaint.
JPMS and its colleagues in the securities industry manage trillions of dollars of assets. Most of this money is actively managed, meaning they attempt to add "alpha" by beating designated benchmarks. The fact that overwhelming data indicates most active managers add "negative alpha", has had limited impact on these clients to date.
Investors "don't stand a chance" when dealing with brokers who view breaking the law and paying relatively trivial fines as a minor cost of doing business.
Just because it's business as usual for them, doesn't mean you should abandon your moral and ethical principles and continue to patronize them. A collateral benefit of using your moral compass is that your returns are likely to increase when you discover the benefits of a globally diversified portfolio of low management fee stock and bond index funds -- something your local broker is unlikely to discuss with you.
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.
Tuesday, August 2, 2011
Tuesday, July 26, 2011
The Price of Procrastination
This week’s blog is inspired by our political leadership since I can’t seem to go anywhere without being reminded of the ticking clock in Washington. Once again, by putting off a decision until the last possible minute, its impact on all of us will be much greater than it should have been.
We all know that it’s easier to put off today what we can do tomorrow, but oftentimes we are simply taking a manageable situation and turning it into a crisis. If you look around, examples of this are not hard to find – and might even be happening in your own life.
A detrimental mistake I see people making at an early age occurs when they are just entering the workforce. The euphoria of earning (and spending) your first “real” paycheck may overshadow the importance of enrolling in the company 401(k). However, the combination of compound interest and time is a compelling reason to start saving early. If you start at age 25 and save just $20/ day and earn 6% interest, you will have amassed over $1.2 million at age 65. If you wait until you’re 35 and save $25/day, you will have $450,000 less to spend in your golden years.
As your career continues, retirement may seem a distant concern, so ensuring you are on track to get there is easy to put on the back burner. You need to take the time to make certain you are saving enough and your accounts are properly allocated at least annually. If you wait until you are ready to walk out the door before seeking financial advice the road to retirement may become even longer.
In retirement, if your spending is putting your financial solvency in jeopardy, many times making at least a small change can immediately make a large impact over time. The only thing you will accomplish if you ignore the situation is making it worse. Be honest when examining your needs versus your wants and wishes. It is a lot less painful to spend fewer dollars eating out, traveling or on gifts for your family than it is to get by on Social Security alone.
I often joke that when I am overwhelmed with the scope of a task, I like to “eat the elephant one bite at a time.” This is a good saying to keep in mind if it feels easier to put off or avoid making a financial decision. The ability to reach your goals may feel impossible at times, but procrastination may only ensure it is more difficult to achieve them. Just ask Congress.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
We all know that it’s easier to put off today what we can do tomorrow, but oftentimes we are simply taking a manageable situation and turning it into a crisis. If you look around, examples of this are not hard to find – and might even be happening in your own life.
A detrimental mistake I see people making at an early age occurs when they are just entering the workforce. The euphoria of earning (and spending) your first “real” paycheck may overshadow the importance of enrolling in the company 401(k). However, the combination of compound interest and time is a compelling reason to start saving early. If you start at age 25 and save just $20/ day and earn 6% interest, you will have amassed over $1.2 million at age 65. If you wait until you’re 35 and save $25/day, you will have $450,000 less to spend in your golden years.
As your career continues, retirement may seem a distant concern, so ensuring you are on track to get there is easy to put on the back burner. You need to take the time to make certain you are saving enough and your accounts are properly allocated at least annually. If you wait until you are ready to walk out the door before seeking financial advice the road to retirement may become even longer.
In retirement, if your spending is putting your financial solvency in jeopardy, many times making at least a small change can immediately make a large impact over time. The only thing you will accomplish if you ignore the situation is making it worse. Be honest when examining your needs versus your wants and wishes. It is a lot less painful to spend fewer dollars eating out, traveling or on gifts for your family than it is to get by on Social Security alone.
I often joke that when I am overwhelmed with the scope of a task, I like to “eat the elephant one bite at a time.” This is a good saying to keep in mind if it feels easier to put off or avoid making a financial decision. The ability to reach your goals may feel impossible at times, but procrastination may only ensure it is more difficult to achieve them. Just ask Congress.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
Tuesday, July 19, 2011
Why Do Americans Hate 'the Rich?'
The on-going Congressional budget negotiations have highlighted a social class divide in the US that nobody likes to talk about. The President has repeatedly called for an end to the Bush era tax cuts, saying the rich need to contribute their fair share to cut the deficit. An article in last Wednesday’s Wall Street Journal highlighted the attitude of most Americans when it quoted a teacher saying, ‘There are so many wealthy at the top, if Washington needs more revenue, it shouldn't come from people like me.’
But based on research by the Tax Policy Center, in order to reduce the deficit from its current level of 10% of the gross domestic product to 3% by 2015 using only taxes paid by the 'rich' (those with incomes over $250,000 a year) the top tax rate would have to be raised to 76.8%. The best way I know to discourage someone from working is to tell them they get to keep less than twenty four cents of every dollar they earn.
And who are these 'rich people' anyway? Everyone likes to talk about people who have offshore bank accounts and pay $30,000 for a shower curtain, but those are caricatures, and represent an extreme minority. At the risk of jumping into the political fray, I think my parents are closer to reality.
They were both born in West Virginia. My mother’s father worked as a coal miner and my paternal grandfather was a carpenter. My father almost died as a baby because his family could not afford the medical attention he needed. The youngest in his family, he was the only one to go to college. They both worked multiple jobs to pay for school.
After graduation, my parents worked as teachers, but they never stopped working. We lived on a farm and spent summers raising crops and selling them to groceries and people who stopped at our roadside stand. We used the money they made to buy a rundown house, fixed it up, rented it, and then used the income to buy more houses. When I was in junior high they bought a small monument company whose owners no longer wanted the hassle of running a business. When they retired from teaching they managed the business full-time. They maintained the rental properties, delivered monuments, and continued to run the farm.
While they worked, they never spent. My mom's favorite stores are still TJ Maxx and the ALDI Grocery. Dad bought only used cars, and mom still saves the wax paper lining from cereal boxes to use to chop vegetables. So they managed to accumulate savings.
They are in their 70's now, and they continue to manage a few rental properties. They volunteer for Meals-on-Wheels, their church pantry, the Rotary, and provide financial support for these and other not-for-profits. They set up a charitable trust that will benefit their church and two universities when they die. None of this would have happened if they hadn't worked so hard all their lives and become 'rich.' But now my parents are embarrassed about what they accomplished and are afraid people will think they are those ‘bad, rich people’ they are always reading about in the paper.
America was built on a strong work ethic. It's what has made us different from other countries all these years. I’ve met many people like my parents over my career as a financial advisor, and for every person like them there is someone else who worked long hours to reach the executive ranks, or started their own company; and many others who are employed by companies that someone else made sacrifices to create.
I understand it is an eternal human condition to be jealous of others who have more than we do. But America wouldn't be the country the world turns to for help if it wasn't for all the people who worked hard and became ‘rich.’ Before we demonize and demotivate them, we need to think about what it will mean for America's future and our own.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
But based on research by the Tax Policy Center, in order to reduce the deficit from its current level of 10% of the gross domestic product to 3% by 2015 using only taxes paid by the 'rich' (those with incomes over $250,000 a year) the top tax rate would have to be raised to 76.8%. The best way I know to discourage someone from working is to tell them they get to keep less than twenty four cents of every dollar they earn.
And who are these 'rich people' anyway? Everyone likes to talk about people who have offshore bank accounts and pay $30,000 for a shower curtain, but those are caricatures, and represent an extreme minority. At the risk of jumping into the political fray, I think my parents are closer to reality.
They were both born in West Virginia. My mother’s father worked as a coal miner and my paternal grandfather was a carpenter. My father almost died as a baby because his family could not afford the medical attention he needed. The youngest in his family, he was the only one to go to college. They both worked multiple jobs to pay for school.
After graduation, my parents worked as teachers, but they never stopped working. We lived on a farm and spent summers raising crops and selling them to groceries and people who stopped at our roadside stand. We used the money they made to buy a rundown house, fixed it up, rented it, and then used the income to buy more houses. When I was in junior high they bought a small monument company whose owners no longer wanted the hassle of running a business. When they retired from teaching they managed the business full-time. They maintained the rental properties, delivered monuments, and continued to run the farm.
While they worked, they never spent. My mom's favorite stores are still TJ Maxx and the ALDI Grocery. Dad bought only used cars, and mom still saves the wax paper lining from cereal boxes to use to chop vegetables. So they managed to accumulate savings.
They are in their 70's now, and they continue to manage a few rental properties. They volunteer for Meals-on-Wheels, their church pantry, the Rotary, and provide financial support for these and other not-for-profits. They set up a charitable trust that will benefit their church and two universities when they die. None of this would have happened if they hadn't worked so hard all their lives and become 'rich.' But now my parents are embarrassed about what they accomplished and are afraid people will think they are those ‘bad, rich people’ they are always reading about in the paper.
America was built on a strong work ethic. It's what has made us different from other countries all these years. I’ve met many people like my parents over my career as a financial advisor, and for every person like them there is someone else who worked long hours to reach the executive ranks, or started their own company; and many others who are employed by companies that someone else made sacrifices to create.
I understand it is an eternal human condition to be jealous of others who have more than we do. But America wouldn't be the country the world turns to for help if it wasn't for all the people who worked hard and became ‘rich.’ Before we demonize and demotivate them, we need to think about what it will mean for America's future and our own.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
Wednesday, July 13, 2011
Update from Washington
It was my hope this week to follow up my May blog on how changes in Social Security might impact you with an update on how the debt ceiling and budget agreement in Washington would do the same.
One small problem, I was relying on Washington to actually have a deal in place by today. Serves me right, I suppose. Here we sit Wednesday morning knowing just as little, if not less, than ever. It’s still my humble opinion that some kind of deal will get done soon, but the details from there are anyone’s guess.
I’ll instead attempt to introduce some more of the latest proposals getting support in regards to this legislation. I hesitate to add to the load of information (and misinformation) on this topic. But, as these ideas get kicked around the floor of Congress, the nightly news and the internet, I think it’s important to provide a basic, centered background on what they might mean for you.
Social Security Cost of Living Adjustments
One targeted way to help slow the growing costs of Social Security is to change how it accounts for inflation. Currently, annual adjustments are tied to the consumer price index, or CPI. For example, with traditional CPI, if the cost of beef rises, the index rises accordingly. The push is to change this in favor of what’s known as a “chained” consumer index. In this case, if the price of beef rises, an adjustment is made to account for those that would simply buy cheaper cuts or choose another source of protein. This would lower the average rise in social security benefits from year to year. It is unclear how much support this has and it would not be sufficient to sustain Social Security for any length of time, but it is a term you might hear in the coming days and weeks.
Social Security Payroll Tax
Employees have been enjoying a 2% cut in the Social Security payroll tax over the last year and a half. While it seems counterintuitive when trying to determine how to get more money into the program, there is talk of maintaining that reduction and extending it to employers as a form of additional stimulus for the economy. Of course, this would likely be tied into the other Bush era tax cuts that are currently extended through 2012, setting up another major clash on tax rules not too far down the road.
Medicare Adjustments
Medicare is an area where details are few and far between as politicians remain reticent to tackle Washington’s most challenging program. The most commonly advocated tax reform measure tied to Medicare is limiting the current $1.1 million mortgage interest deduction ceiling to $500,000 and restricting the deduction solely to primary residences. This would be another drop in the bucket, but seems to have a fair amount of support.
In other words, the unknown continues to be the unknown. The good news is that most of the changes being considered are slow moving and will take 10-20 years to fully come into play. It will take much of the burden off anyone currently receiving benefits and give those who hope to in the future time to plan and adjust accordingly.
The best offense is still a good defense. Having a broadly diversified portfolio capable of responding to different market pressures and providing for what you need in the short term, maintaining spending patterns that are within your means, and combating future health care costs by eating well and staying fit are the best tools to combat whatever comes down the pike. The only other recommendations I have would be to ignore the noise as much as possible until firmer details present themselves and, if you feel strongly about it, put that venting to use by sending an e-mail to your representatives.
It is my sincere hope to have an actual update on what was passed rather than what might be passed in the near future and how the rising debt ceiling and budget agreement impact you.
Have a great week!
Chip Workman, CFP®
Tuesday, July 5, 2011
The 25 Documents You Need Before You Die
On July 20th, The Asset Advisory Group will be hosting an Estate Planning lunch and learn session with Jeff Albrinck of Rendigs, Fry, Kiely & Dennis, LLP. The topics will range from the basics to Jeff's take on the current state of estate tax legislation and how to plan for the future as laws continue to fluctuate with each election cycle.
In the meantime, the Wall Street Journal published an excellent article, "The 25 Documents You Need Before You Die" which does an excellent job of prefacing Jeff's presentation by breaking down the basic documentation all of us should have on hand and easily accessible by our heirs or those that would carry out our wishes. This often feels like an overwhelming task, but as author Saabira Chaudhuri explains, it really doesn't have to be.
You can link to the article above or by clicking here.
Have a great week!
The Asset Advisory Group
http://taaginc.com
info@taaginc.com
You can link to the article above or by clicking here.
Have a great week!
The Asset Advisory Group
http://taaginc.com
info@taaginc.com
Wednesday, June 29, 2011
Freeze!
It’s a good thing I practice what I preach. In late May, my husband, Tom, received a call from Nordstrom saying someone was trying to use his credit card number at their Chicago store. Thankfully, they require a password if you do not have your card in your possession and declined the charges because the imposter did not. The scary thing was that he did have Tom’s social security number. Chase Bank soon called to say a suspicious-looking charge was being attempted on our Visa. I called American Express to make sure there was no suspicious activity on that card. There wasn’t.
I immediately logged onto each of the three credit bureau’s web sites and put a credit freeze on Tom’s credit report as well as my own. I also went to Annualcreditreport.com and ran a credit report from one of the three credit agencies. I noticed Macy’s had just made an inquiry into his report and when Tom called them, a new card had been opened in his name to the tune of $2,000 in charges. Next, Sears was calling to verify whether Tom had recently reactivated an account we closed several years ago.
Over the next few days we received mailings from Target and Victoria’s Secret that accounts had been applied for in Tom’s name, but were rejected because his credit had been frozen. Victory!
While it was definitely an inconvenience to deal with this, it could have been much worse. We each check our credit reports every four months using Annualcreditreport’s free site. Because we use our Visa and American Express to pay all of our monthly expenses, I download our transactions into Quicken daily. While both helped contain a situation that could have quickly gotten out of control, the fraud departments at Nordstrom, Chase and Sears are to be commended for not allowing any unauthorized activity. We were not liable for any charges at Macy’s.
In the past, I did not think it was necessary to have a freeze on our credit. Although the cost is minimal ($5 with each of the three credit bureaus to lock and subsequently unlock your account), it does add an extra step when you apply for credit, change jobs, insurance or anything else that requires a credit check. You must contact each credit bureau and thaw your account for a specific time period or for a specific lender. If you find out which bureau the lender uses, you can request the thaw at just that agency.
I now realize this is a small price to pay for peace of mind. While I’m not advocating a credit freeze if you do monitor your accounts and credit report regularly, you should definitely consider it if it you do not. Another option is the free version of Identity Theft services that are now becoming available. A recent blog in the New York Times described a few of them.
The worst part of this whole fiasco is that we do not know how Tom’s social security number and two of our account numbers were acquired by someone else. We shred all sensitive documents and mail the few bills we pay by Pony Express directly through the post office or our office drop box. With all of the recent data breaches in the headlines, I’m not really surprised. This has only reinforced what I have learned from our Identity Theft Lunch and Learns, which Chip blogged about last year. It’s not a matter of if, but when, your identity will be stolen. Do your best to be prepared.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
I immediately logged onto each of the three credit bureau’s web sites and put a credit freeze on Tom’s credit report as well as my own. I also went to Annualcreditreport.com and ran a credit report from one of the three credit agencies. I noticed Macy’s had just made an inquiry into his report and when Tom called them, a new card had been opened in his name to the tune of $2,000 in charges. Next, Sears was calling to verify whether Tom had recently reactivated an account we closed several years ago.
Over the next few days we received mailings from Target and Victoria’s Secret that accounts had been applied for in Tom’s name, but were rejected because his credit had been frozen. Victory!
While it was definitely an inconvenience to deal with this, it could have been much worse. We each check our credit reports every four months using Annualcreditreport’s free site. Because we use our Visa and American Express to pay all of our monthly expenses, I download our transactions into Quicken daily. While both helped contain a situation that could have quickly gotten out of control, the fraud departments at Nordstrom, Chase and Sears are to be commended for not allowing any unauthorized activity. We were not liable for any charges at Macy’s.
In the past, I did not think it was necessary to have a freeze on our credit. Although the cost is minimal ($5 with each of the three credit bureaus to lock and subsequently unlock your account), it does add an extra step when you apply for credit, change jobs, insurance or anything else that requires a credit check. You must contact each credit bureau and thaw your account for a specific time period or for a specific lender. If you find out which bureau the lender uses, you can request the thaw at just that agency.
I now realize this is a small price to pay for peace of mind. While I’m not advocating a credit freeze if you do monitor your accounts and credit report regularly, you should definitely consider it if it you do not. Another option is the free version of Identity Theft services that are now becoming available. A recent blog in the New York Times described a few of them.
The worst part of this whole fiasco is that we do not know how Tom’s social security number and two of our account numbers were acquired by someone else. We shred all sensitive documents and mail the few bills we pay by Pony Express directly through the post office or our office drop box. With all of the recent data breaches in the headlines, I’m not really surprised. This has only reinforced what I have learned from our Identity Theft Lunch and Learns, which Chip blogged about last year. It’s not a matter of if, but when, your identity will be stolen. Do your best to be prepared.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/
Wednesday, June 22, 2011
What Do We Really Know?
Many times in conversations I am presented with a concern that begins with ‘well we KNOW that….’ What follows is usually a statement that has been made and repeated enough times in the media that it is now accepted as fact. But sometimes what we think we know to be true may not be true forever.
For example, many people express concern that the US has lost manufacturing jobs at a rapid pace over the last decade, and believe we will no longer be a significant, global economic player. In the past, the strong US dollar made it difficult to export our products at favorable exchange rates, and lower wages in China and other countries made our labor costs uncompetitive, so the number of manufacturing plants in the US did decline; but that may no longer be the case.
The booming Chinese economy, which created a middle class whose population is an attractive target market for companies like P&G and McDonalds, has also had the consequence of raising labor rates in the country. According to the May 12 issue of The Economist, pay for factory workers in China soared by 69% between 2005 and 2010. This wage growth in China, combined with the relatively slow growth of wages in the US, may no longer make locating factories in China the savings ‘slam dunk’ that it once was. Caterpillar, a heavy equipment manufacturer, is moving production back to Texas, while NCR is moving its ATM machine manufacturing to the state of Georgia. Several other examples are cited in the article.
It’s a great lesson to learn. Every negative cited in the news – falling housing prices, the decline in the US dollar, the high US unemployment rate – has a corresponding impact in other areas of the economy we may not even be aware of today. There are too many forces at work on the market for us to know for certain what will happen next, so don’t accept conventional wisdom at face value. What you ‘KNOW’ to be true may already be changing.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
For example, many people express concern that the US has lost manufacturing jobs at a rapid pace over the last decade, and believe we will no longer be a significant, global economic player. In the past, the strong US dollar made it difficult to export our products at favorable exchange rates, and lower wages in China and other countries made our labor costs uncompetitive, so the number of manufacturing plants in the US did decline; but that may no longer be the case.
The booming Chinese economy, which created a middle class whose population is an attractive target market for companies like P&G and McDonalds, has also had the consequence of raising labor rates in the country. According to the May 12 issue of The Economist, pay for factory workers in China soared by 69% between 2005 and 2010. This wage growth in China, combined with the relatively slow growth of wages in the US, may no longer make locating factories in China the savings ‘slam dunk’ that it once was. Caterpillar, a heavy equipment manufacturer, is moving production back to Texas, while NCR is moving its ATM machine manufacturing to the state of Georgia. Several other examples are cited in the article.
It’s a great lesson to learn. Every negative cited in the news – falling housing prices, the decline in the US dollar, the high US unemployment rate – has a corresponding impact in other areas of the economy we may not even be aware of today. There are too many forces at work on the market for us to know for certain what will happen next, so don’t accept conventional wisdom at face value. What you ‘KNOW’ to be true may already be changing.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
Subscribe to:
Posts (Atom)
Posts
