Tag Archives: financial advice

Class of 2013: Your Degree Doesn’t Mean Squat

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My Comments: This headline caught my attention. Perhaps you’ve read recently about student loans and how they can put a noose around the neck of a college graduate, a noose that stymies rational planning for years, including marriage, buying a house, doing a lot of things that I never gave a second thought to when I finished college 50 years ago.

For the past 38 years, I’ve been an entrepreneur in financial services. If I don’t work and earn a living, we don’t eat. I recently spoke with a young woman who had lost her job as a representative for a drug company. Her parents, friends of mine, asked me to talk with her.

She was now working for a local hospital, was not happy and was not making what she thought she was worth. I agreed and began a conversation with her about an opportunity with me where if she applied herself, she could find herself making more money than she was before, setting her own hours, and being responsible only to herself and her clients.

Among the first words out of her mouth was what would be her salary and what benefits would I provide. Needless to say, I didn’t offer her a position in my company. By the way, the image below is of a Bentley with a descriptive license tag.

Ilya Pozin | Founder of Ciplex. Columnist for Inc, Forbes & LinkedIn. 30 Under 30 Entrepreneur.

Simply having a college degree will not get you hired. We need to break away from this idea. In all reality, most employers could care less about your GPA or where you went to school.

Today, getting hired in entry-level positions requires experience and fine-tuned skills, not a 4.0 GPA. This probably isn’t what most new grads want to hear, but it’s the truth.

Many new college graduates enter their job search with a why-wouldn’t-someone-hire-me mindset. But most employers aren’t going to take on an entry-level hire unless they’re certain they’ll positively impact the company.
So the real question for new graduates to consider is this: What can you bring to the table that makes you worth hiring?

Here’s some food for thought for those entering the workforce:
1. Your degree isn’t a golden ticket. We need to put an end to the “silver spoon complex.” Simply obtaining a degree may only help you out if you’re planning to go the corporate route, where companies have more time and money to invest in training programs. But at my company, I don’t even know which of my employees has a degree or not–it makes no difference to me. I care more about the impact my employees have on my company.

I’d much rather hire someone who has been freelancing as a web developer for three years than someone who has a master’s degree in computer science. They’re bound to be more passionate, driven, and profitable in the long run, as they know what it takes to impact the bottom line.

2. It’s all about experience. I started my company Ciplex when I was 17. Throughout college I ran my business on the side, in addition to working in my college IT department. Today, undertaking one internship isn’t enough to prove your experience to employers. The reason so many college graduates can’t find work is because they lack experience.

One simple way to get more experience within your industry is by taking on freelance work and contracting gigs. These types of experiences will help you learn and grow while developing a sense of independence, responsibility, and drive. All of these traits are highly attractive to employers.

3. Passion will help you succeed. If you’re just looking to get hired anywhere, employers will be able to tell. I get emails all the time from job seekers who are just looking to get hired and don’t indicate any passion for their work or my company.

Passion will get you hired. Experience is one way to showcase this, but you also have to learn to properly articulate it on your cover letter, resume, and during networking. If you use the same cover letter for every employer, do you really think you’re conveying your passion for the position you’re applying for? Remember, it’s not just about looking for a job. Employers want employees who are truly passionate about what they do and have a vision to benefit the company.

4. Companies hire the person who is certain to cause the most positive impact. Before you apply to your next job opening, ask yourself the following: What can you do for the company? How can you turn a profit? If you aren’t able to answer these questions, then don’t apply. Employers–especially small businesses and startups–are only interested in hiring someone who is going to positively impact their company.

When I review emails from job seekers, it’s very easy to tell who’s just looking to get hired and who’s actually going to impact my company. Make the effort to prove to employers you’re worth hiring.

5. Go the extra mile. Success doesn’t come to those who wait. You have to give everything you do your all … even if it means working late or on the weekends. Some people describe this as paying your dues, but it’s really just putting in the effort required to make an impact.

What do you wish someone would have told you when you graduated college?

Biggest Retirement Threat? It’s Not Running Out Of Money

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Social SecurityMy Comments: This is certainly a different slant on things. As a financial planner and advisor these many years, running out of money has been the major threat for those of us thinking about retiring or who are already retired. How do we make sure we’re not broke before we die?

Just what I need; something else to worry about.

May 15, 2013 • Robert Laura

Some say retirement’s greatest threat is inflation, the cost of adult children or the potential of getting ripped off. As financial professionals, we try to warn clients about these downsides to retirement life by suggesting ways to combat the rising cost of living, to keep Junior from squandering the family fortune, or to run away when something sounds too good to be true. Yet retirees face even greater threats, some of which never get discussed and are rarely planned for, including the loss of one’s ability to see, hear, taste, touch and smell.

When was the last time a client cancelled or rescheduled a meeting because of a 3-cent rise in canned peaches, they needed to pick up or drop off an incapable son-in-law, or they had a meeting come up with a charming snake oil salesman? On the other hand, if your practice is like mine, a week doesn’t go by without at least one appointment change because of a client’s eye, ear, nose, mouth, hand or foot problem. Much to my surprise, many new retirees still don’t realize that medical costs attributable to the three most common senses — vision, hearing and dental — are not covered by Medicare and can siphon much needed savings out of their retirement accounts if problems arise and persist.

I wish I could tell you I always discussed this issue with clients, but its significance has only come to light in recent years. As I have shared before, much of everyday life in retirement is like an iceberg, wherein a large portion of what takes place remains below the surface, or out of mainstream conversations and preparation. The more time I have spent engaging clients and prospects at my Naked Retirement workshops, the more I learn about retirement life. Last year I asked one group to discuss what their biggest retirement fear was. A woman in her early sixties replied, “Losing my hearing and the ability to enjoy my friends.”

I had never heard that response before, so I asked her to expand on her answer. “I’m losing my hearing in my right ear,” she said, “and have trouble following group conversations.” She put an exclamation point to the subject by saying, “I don’t know what I would do if I couldn’t communicate with my family and friends!”

It’s an eye-opening perspective, to be sure, making it more important than ever to encourage clients to do things now instead of assuming that time and their five senses will be on their side throughout retirement.
Continue Reading HERE...

Why Medicare Won’t Cover You Overseas

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My Comments: It’s been a few years since my wife and I last travelled out of the country. During this time, she and I both became eligible for Medicare benefits. And given my health history over these past few years, without Medicare we would have been financially stressed.

We still have expectations of visiting family in Europe and fulfilling an item on my bucket list which is a visit to New Zealand. This article adds another element when it comes to making plans to travel overseas.

By Kathleen Peddicord | U.S.News & World Report LP – Mon, May 13, 2013

If you’re an American considering the idea of retiring overseas, your Medicare won’t travel with you. The United States generally prohibits Medicare from paying for medical services for retirees outside the country and its territories. The more than half a million retired Americans living overseas and the millions more who travel extensively abroad must either go without care until they return to the United States or pay out-of-pocket for the care they need.

Many retired Americans who have paid into Medicare their entire working lives and then choose to move overseas find this situation to be unfair. This restriction on Medicare coverage also ignores the potential cost savings to Medicare offered by lower-cost health care options abroad.

Currently about 50 million Americans receive Medicare benefits. In less than a generation, that number will increase to 80 million. In 2012, Medicare spending was $560 billion, about 15 percent of the total federal budget. By 2022, Medicare spending is expected to reach $1.1 trillion, or more than 19 percent of the federal budget. The Medicare Part A trust fund is expected to be exhausted by 2024.

As policy-makers grapple with this financial crisis, may people believe that more of the cost of health care will be shifted to Medicare beneficiaries in a mix of higher deductibles, co-pays and reduced benefits. While allowing seniors to receive Medicare coverage abroad is not a cure-all to this fiscal crisis, the potential savings could be significant. Health care costs for a procedure overseas can be less than half of the cost of the exact same procedure performed in the United States, saving both Medicare and the retiree money.

For example, if a Medicare beneficiary could get a hip replacement performed in Costa Rica, Panama or Israel by a highly-trained (often U.S.-educated) surgeon at an internationally accredited hospital for half of the cost of the same procedure at a U.S. hospital, the Medicare system would realize significant savings.

Studies indicate that the age of retirees living abroad peaks at about 72. One reason that older retirees are less likely to live abroad is that, as healthcare needs and concerns increase with age, they are returning to the United States where Medicare covers them.

The current Medicare rules create a disincentive for Americans seeking a lower cost of living (and lower health care costs) abroad. Medicare-eligible Americans living abroad, even part time, must continue to pay their Medicare premiums but either forgo health care while abroad or pay out of pocket for it. If they pay out of pocket, they are in effect paying twice for health care coverage. If they do not continue their Medicare premium payments, they are penalized upon their return to the United States and enrollment or re-enrollment in Medicare.

This disincentive may also be causing unnecessary costs to Medicare and poorer health outcomes for some Americans. Because of the double cost, retired Americans often choose to forgo health care while abroad, even skipping routine doctor visits until their condition has festered into one requiring extensive and costly treatment. Then they return to the United States to receive Medicare coverage.

A non-partisan group called the Center for Medicare Portability, formed in 2011 and based in Washington, D.C., is working to try to change Medicare’s rules for overseas retirees. The objective of the CMP is to make it possible for retired Americans who live overseas to have access to the Medicare benefits they have paid for throughout their lives.

International health care coverage for American retirees is not new. In fact, it’s fairly common. The federal government already provides health care coverage abroad for retired military and their families, retired federal employees, some veterans and even some Medicare beneficiaries. The CMP hopes that Congress will see that the global health care market offers part of the solution to the Medicare spending crisis.

The CMP does not advocate any one mechanism for Medicare portability, but has proposed several ideas. One option, which could be administratively feasible in countries with large and growing U.S. expatriate retiree communities, would be to set up a traditional Medicare system, including Medicare Part A (mainly inpatient care), Part B (mainly outpatient care) and perhaps Part D (prescription drug coverage).

A Medicare-contracted insurance intermediary (for example, a U.S. insurer that already operates in the specified foreign country and that has a network of providers and administrative capabilities in that country) could manage beneficiary enrollments and relationships, oversee provider accreditation and certification issues, negotiate reimbursement rates (based on usual and customary costs in that country and with Medicare approval), administer billing and payments and manage fraud and abuse.

Another option could be a capitated care system in which a network of providers would agree to provide care to a beneficiary for a set price. That price would be based on the expected actuarial cost of care for the beneficiary in the foreign country, based on age, pre-existing conditions and other factors, just as Medicare Advantage does in the United States.

A third option, possibly the simplest one, would be to create a voucher system for retirees who live abroad. A voucher could be provided to Medicare beneficiaries who agree to receive their care abroad, valued, for example, at 75 percent of the expected cost of care for the beneficiary in the United States. This would immediately save Medicare 25 percent of the cost of covered benefits for that beneficiary, and the beneficiary could use the voucher to purchase a health insurance policy from a private insurer in the country where he or she retires.

US Deficit Falls Faster Than Expected

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Social Security 3My Comments: It would be easy to get overly excited about this. Certainly it’s good news but to believe it’s a fundamental shift in the economy is stretching things. For one thing, the sequester that happened recently simply means that the Federal government is spending less money.

But for those of us looking for good economic news, this is worth a look. Keep your fingers crossed, however.

By James Politi in Washington | Financial Times

The US budget deficit is declining faster than expected as the rebound of the world’s largest economy helps the government collect more revenue from businesses, households and the two mortgage companies it rescued in the financial crisis.

The brighter fiscal outlook comes as other advanced economies are struggling to reduce their deficits through drastic spending cuts and tax rises at a time of weak or negative growth. Growth figures to be released on Wednesday are expected to show that the 17-country eurozone contracted again.

New figures released by the non-partisan Congressional Budget Office showed the US budget deficit falling to $642bn, or 4 per cent of gross domestic product.

The CBO figures mark a $203bn improvement over its earlier projection only three months ago and a sharp reduction compared with the $1.1tn deficit of 2012, or 7 per cent of GDP. The CBO predicted the deficit would decrease further to 3.4 per cent of GDP in fiscal 2014 and 2.1 per cent the year after, before it starts rising again.

The figures were released as the New York Fed said households were continuing to reduce debt, by $110bn in the first quarter of the year. The number of loans that are more than 90 days behind on a payment also fell from 6.3 per cent to 6 per cent. The figures show the improvement in household finances, but also suggest that consumers will only increase their spending slowly.

The much lower government deficits will reduce pressure on the White House and Congress to find a solution to the country’s longer-term debt woes, which remain as America faces soaring projected health and pension costs later this decade.

“You don’t want to use the progress we are making as an excuse not to fix the problem, and there’s a very real risk that will happen,” says Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, which has been campaigning for a big deficit grand bargain.

The improved outlook is partly the result of increased tax revenues worth $105bn compared to the earlier projection from both businesses and individuals, as the economy continued to recover. The housing rebound also allowed Fannie Mae and Freddie Mac, the mortgage finance giants under government control, to make $95bn in payments to the Treasury. Automatic spending cuts known as sequestration were already factored into the CBO’s calculations, helping drive the declining deficits.

The better picture has also shifted the deadline by which the US needs to raise its borrowing limit to avoid a default on its debt from August until October or even November, the CBO said.

The US debt limit will be reached over the coming weekend but the US Treasury can take a series of “extraordinary” cash-management measures to stave off default in the absence of a deal on Capitol Hill.

The later timeframe for the US to raise its borrowing limit means congressional negotiations over a fiscal deal have advanced much more slowly than previously expected. Democrats, who control the Senate, and Republicans, who control the House, have been bickering over the process by which they could reconcile their two vastly different budgets.

Meanwhile, the US political debate has been consumed by other matters, from the immigration bill to this week’s furore over reviews of the Tea Party by US tax authorities.

The improving economic indicators have removed some of the incentives for President Barack Obama and congressional Democrats to accept the need for additional spending cuts, particularly if they hit popular government health and pension programmes such as Social Security and Medicare. It will also make Republicans even less willing to consider the need for higher taxes since revenues are already rebounding significantly.

“A lot of the energy and appetite for a substantial [deficit] fix is gone,” said Doug Holtz-Eakin, the former Congressional Budget Office director and head of the American Action Forum, a moderate Republican think-tank in Washington.

But that is not to say all momentum has stalled.

The White House has continued talks with Republicans in the Senate who would be the most likely brokers of a deficit deal, and the president last week played golf with Saxby Chambliss of Georgia and Bob Corker of Tennessee, who could help craft a bipartisan deal.

House Republicans are meeting this week to discuss their demands for a debt ceiling increase. The congressional tax-writing committees led by Max Baucus in the Senate and Dave Camp in the House are also feverishly working on their tax reform plans, which could spur momentum for a broader deal.

Gabe Horwitz, director of the economic programme at Third Way, the centrist Democratic think-tank, said he accepted that “the bigger the fire, the more response you’re going to get out of Congress”.

But he said there should still be the political will to do a big deficit deal. Although short-term deficits are declining, by the end of the decade the US fiscal picture will darken again, as the retirement of the baby-boomer generation drives sharp increases in health and pension costs.

In addition, the White House and many lawmakers on both the right and the left of politics are unhappy with the present composition of deficit reduction, especially the $1.2tn in sequestration cuts.

These reductions, which took effect in March, disproportionately hit domestic agencies and programmes beloved by Democrats and the Obama administration, and hurt the Pentagon much more than Republicans would like. US government agencies have tried to blunt their effect – the Department of Defence on Tuesday announced a decrease in the number of enforced leave days for its civilian workforce from 14 to 11 – but many are still suffering badly.

Stuck in the Mud: Beyond America’s Fiscal Trench Lines

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world economyMy Comments: I recall a conversation I had some three years ago where someone asked me if I followed Keynes or did I follow the Austrian approach. Not knowing at the time just what this person was asking, I responded “Keynes” since I knew more or less how Keynes mind worked and had no idea yet about how Hayeks mind worked.

Today that boils down to a political chasm between Democrats and Republicans. It need now be so but it is. And who is ulitmately right or wrong remains to be seen. Perhaps neither to the degree that today they are almost polar opposites. Meanwhile, the folks in Washington, those whom we presumably elected to represent us and every other citizen of this country, are mired in ideology and incapable of looking beyond their own narrow vision. Wish it were not so but …

By Edward Luce | The Financial Times | May 12, 2013

When historians look back on the meltdown of 2008 they will conclude that the country that triggered it – the US – was among the least bad in its continuing monetary and in its initial fiscal response. What a frustration, then, that the US finds itself endlessly relitigating the debate between Keynesians and anti-Keynesians.

In the past few weeks, the intellectual tide has turned sharply towards the former following revelations of errors by Kenneth Rogoff and Carmen Reinhardt. This has been assisted by the IMF’s change of heart about the merits of short-term stimuli. Moreover, austerians, such as Niall Ferguson, the Harvard historian, continue to aid their own discrediting by dredging up the canard about John Maynard Keynes’s “childless vision” – linking his homosexuality to an alleged reckless disregard for the long term.

Yet for all the academic sound and fury, US politics is unchanged and apparently unchangeable: mild fiscal contraction is set to dilute the US recovery for at least another year. Democrats are impotent against Republican stonewalling in the House of Representatives. And Republicans can do nothing about Barack Obama’s veto – or Democratic control of the Senate. Which means we are condemned to at least another year of hypothetical fiscal debates. Here, vindicated though they may be on counter-cyclical fiscal policy, Keynesians are guilty of sins of omission.

Like Gresham’s law, the fiscal debate tends to drive out others. Keynesians want bigger deficits. The Tea Party wants smaller government. The more dominant these battle lines, the harder it is to craft ways out. New federal investment may be off the menu. But US companies are sitting on almost $2tn in cash reserves and have almost the same again parked offshore – a multiple of any possible federal investment. Public action could crowd-in private investments without troubling the taxpayer. And the resultant boost to productivity would reduce the burden of future obligations. “What we need is not bigger or smaller government for growth, but narrower and stronger government,” says Paul Romer, the growth economist.

Might there still be ways in Washington around these entrenched positions? Next week, John Delaney, a freshman Democratic congressman, will test that proposition when he launches a bill designed with an eye both on what is economically useful and politically sellable. The Rebuild America Act would give companies that repatriate foreign earnings a tax break on whatever they invest in a new infrastructure fund. Unlike a public bank, the fund would underwrite bonds to fund state, local and municipal projects – there would be no new federal bureaucracy.

It is hard to see how Republicans could object on substance to a bill that gave tax breaks to companies to improve US infrastructure. We shall see if they treat it on merit or politics. It will also be interesting to see how many other Democrats, and Keynesians, embrace its logic. Mr Delaney, who had a long career in private equity, has an accurate diagnosis of US politics. “Intransigent partisanship is getting in the way of our country having a proactive, pro-growth government,” he says. “Our tired fiscal impasse is not only a daily headache in Washington, it’s become a real competitiveness issue for our economy.”

To be sure, his biggest challenge – and that of almost any legislator taking any initiative – will be to get around the scorched-earth caucus in the Republican party, that opposes anything that could be seen as a success for public action. But there are cynics on both sides. Last month, Barack Obama appointed an industry insider, Tom Wheeler, as the next head of the Federal Communications Commission. People who have donated generously to Mr Obama’s campaigns were happy with Mr Wheeler’s nomination. Others less so.

The FCC could make simple changes to stimulate more investment in the cable and wireless sectors, which would help return US average internet speeds to the top of international tables. Mr Wheeler could also accelerate the FCC’s dilatory schedule for auctioning off public spectrum. “In just the same way that mergers result in job losses, creating and licensing multiple platforms for technology will create jobs,” says Reed Hundt, who was Bill Clinton’s highly successful FCC chair in the booming 1990s.

Defenders of Mr Wheeler say he will be keen to establish his distance from an oligopolistic industry that hired him as their advocate. They make the same argument, too, for Mary Jo White, the new chair of the Securities and Exchange Commission, who has spent her career representing Wall Street. Recent SEC moves give little cause for cheer. In isolation, bills such as Mr Delaney’s, or the rulings of federal agencies, do not match the importance, or scale, of the fiscal debate. But the US budget is stuck in the mud. And there are other sources of growth.

It is worth remembering that Keynes was a champion of the “middle way”. Yet foes, and occasionally friends, reduce him to a free-spending caricature. “I suggest that the state encouragement of new capital undertakings by employing the best technical advice … and by lending the credit and the guarantee of the Treasury to finance them more boldly, is becoming an inevitable policy,” Keynes wrote in the 1920s. These are the thoughts of an economist looking to the long term. With the possible exception of the final clause, they are also a good description of Mr Delaney’s bill.

Goodbye Capital Gains Tax Breaks

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USA EconomyMomentum is building for a tax code overhaul, and lower taxes on stock transactions could be doomed.
By Joy Taylor, May 6, 2013

Tax breaks for capital gains and dividends are likely to end by 2015, as lawmakers look for ways to broaden the tax base, allowing income tax rates on individuals to be cut. There is precedent for this — the tax break for long-term capital gains was axed in 1986, the last time that lawmakers significantly reformed the tax code.

Tax overhaul won’t happen swiftly. Lawmakers won’t have time to complete tax reform until 2014, and when they do finish it, the effective date probably will be prospective, so changes aren’t likely to occur until 2015. There will be plenty of time to mull the impact on your investment portfolio and contemplate actions to minimize the tax wallop.

But discussions will intensify in the coming months. One reason: Senator Max Baucus (D-MT), who heads the Senate committee responsible for writing tax laws, has announced that he’ll leave the Senate when his term ends at the end of 2014. Look for him to push hard for tax reform before he leaves, making a revamped tax code his policymaking legacy.

In the end, we expect long-term capital gains and dividends to be taxed as ordinary income — a big change from the 20% maximum rate they now incur. If President Obama succeeds in winning a top income tax rate on individuals of more than 28%, however, it’s possible that the maximum rate on long-term capital gains and dividends will be limited to 28%.

Consider taking gains before 2015 to lock in the lower rate currently in place. But be careful not to let the tax tail wag the investment dog. Tax savings aren’t the only consideration when culling your portfolio; your moves should also make financial sense. Note that we expect taxwriters to keep the stepped-up basis rule for inherited assets, so 100% of pre-death appreciation on those assets will escape income tax when the heirs sell, regardless of the capital gains rate.

Take care in engaging in installment sales before then. The 1986 law provided that installments received after the capital gains rate rose weren’t protected, even though the sale occurred before the rate change. We expect that a similar rule will be passed this time, too.

Weigh the impact on succession plans for family firms. Corporate redemptions of shareholders’ stock will be hit. Family firms hoping to redeem stock of senior owners to shift control to the next generation will need to take that into account.

Keep in mind that the relative advantages and disadvantages of components in your portfolio may need reevaluating. Dividend paying stocks will lose their tax-favored status if dividends are taxed at ordinary income rates. And there will be no tax disadvantage for having growth stock in retirement plans. Without a capital gains preference, it won’t matter that appreciation on the stock will be taxed as ordinary income when distributed to the owner of the retirement plan or IRA.

And it’s worth noting one other tax reform proposal that affects investors: Stock sellers could lose the right to direct that the highest-basis stock be sold first. They may be forced to use the average basis of their shares to compute the gain or loss recognized on a sale, rather than use the specific identification method. The tax reform plan drafted in the House includes such a provision, and we think it has a good chance of making it into law.

Even Skilled Investors Can Use a Financial Advisor

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profit-loss-riskMy Comments: Yesterday, the focus of my comments was that if you want to go it alone, that’s OK. Here, however, are some reasons for not attempting to go it alone and be solely responsible for your decisions. I can confirm, after 38 years in this business, that emotions play a huge role in whether or not you are successful as an investor. It’s not about fees, or lack of skill. It’s whether you can make objective choices when it comes down to YOUR MONEY THAT IS AT RISK.

Steve Garmhausen | Special to CNBC.com | Monday, 29 Apr 2013

In the past ten years, more investors have been turning to professionals for help with their portfolios. One measure of the industry—assets under management at registered advisors—swelled from $22 trillion in 2002 to nearly $50 trillion in 2012.

What’s behind that surge? More people need help as employer-sponsored pensions give way to self-guided retirement plans such as 401(k)s and they realize that investing in a globally linked market is complicated.

Yet, a growing number of investors and experts are embracing financial advisors for a more surprising reason: to help them avoid the most costly error investors can make, which is listening to their emotions.

People tend to buy when markets are on the way up and sell on the way down. That costs the average mutual fund investor nearly 4 percent a year, based on data from research firm Dalbar Inc. If you invested $100,000, losing nearly 4 percent a year would mean you’d end up with about $130,000 instead of $280,000, assuming a 6 percent annual return.

Dalbar found that “psychological factors” account for 45 percent to 55 percent of the persistent gap in investment returns. In short, investors can’t resist running with the herd.

Case in point is the Great Recession. In March 2009, when the markets hit a trough, household net worth had fallen from a high of $64.4 trillion in second-quarter 2007 to $50.4 trillion in first-quarter 2009. Americans’ stock holdings plunged 5.8 percent to $5.2 trillion, and mutual funds holdings slid 4.1 percent to $3.3 trillion, as investors pulled $300 million out of their equity funds at the bottom of the market, according to data from the Investment Company Institute.

“I do think there is a very strong case to be made for a sensible advisor to help you make the right decisions,” said Charles Ellis, founder of consulting firm Greenwich Associates and former chair of the investment committee for Yale University’s endowment, as well as a longtime proponent of buying inexpensive index mutual funds directly.

An advisor may also be able to help you establish a plan you feel comfortable sticking with.

Dalbar President Louis Harvey argues that the seeds of bad buying and selling decisions are planted well before ill-timed transactions. An investment strategy must meet needs as well as risk tolerance, he said.

“We found that when there is a mismatch; you have reactions that lose people money,” Harvey said.

While not a sure-fire solution, a financial advisor can provide a counterpoint and a reminder that staying invested through downturns yields the best returns over time.

“I don’t think there’s any dispute that a lot of people out there could do a good job of investing their own money,” said Michael Branham, president of the Financial Planning Association. But, he added, “there’s so much volatility in the market that it’s easy to get emotionally charged either way.”

The surging stock market is most likely emboldening investors again. Current low bond yields can make it tempting to jump at higher-risk fixed-income investments. It’s tempting to pour in more money, right? But then you’d run the risk of buying high—falling into an emotionally driven move, such as investors who sold during the March 2009 low.

An outside voice of reason can be a major advantage for many investors, said Mark McNabb, clinical professor of finance at the University of Texas at Dallas. “You need someone to act as your filter sometimes,” he said.

Dean Harman, president of Harman Wealth Management, recalled meeting with a client who told him that, on one hand, she didn’t want to lose money. “On the other hand, she was saying, ‘Should I get aggressive so I can make more money?’ ”

Dean reminded her of the long-term goal they had agreed on—funding her retirement to the tune of $56,000 a year.
“I brought her back to what her goal is,” Harman said. “As long as we can deliver the income she needs, and a modest amount of growth, she doesn’t need more than that.”

He said he views an aggressive stance on behalf of this client, who has $1.5 million with Harman Wealth, this way: If it were successful and increased her assets under management to $3 million, her life wouldn’t change that much. But if the posture were to backfire and the portfolio fell to $700,000, “then she’s in real jeopardy of not being able to generate the income she needs to meet her goals,” he said.

“Manage to your goal, not to what the markets are doing,” Harman advised.

Tired of Financial Advisor Fees? Try Going It Alone

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investment-tips My Comments: From the beginning, I’ve told prospective clients and clients alike that it’s OK to go it alone. But if you decide you want help, my hand is in the air as someone who does this for a living and I’m ready to help you. If you are trying to decide, here are some thoughts that will give you some clarity.

Monday, 29 Apr 2013 | By: Shelly K. Schwartz | Special to CNBC.com

As if managing your investment portfolio weren’t challenging enough.

These days, consumers who turn to financial planners for help must also contend with a minefield of compensation models, making it tough to ferret out exactly what financial advisors charge in fees.

A 2012 study by Cerulli Associates and Phoenix Marketing International, in fact, found more than 60 percent of investors either did not know how their advisors got paid or thought that the service they offered was free.

A little tip? It never comes free.

“Investors are very sensitive to the fees they pay directly to their advisors, and all but oblivious to the fees they pay indirectly,” said Barbara Roper, director of investor protection for the Consumer Federation of America.

Time to pull the curtain back on how financial professionals earn their keep—and what their words of wisdom cost you.

The following five questions, aimed squarely at your advisor, can help ensure you get the biggest bang for your buck.

Do You Collect a Commission or Fees?

Financial advisors generally fall into one of three camps: fee-only, fee-based or commission-based.

Independent fee-only investment advisors are paid solely by you, based on the amount of your money they manage.

Fee-based advisors are a more recent industry hybrid. These advisors charge you a percentage of assets being managed, but also collect a third-party commission for selling insurance and investment products.

Commission-based advisors, on the other hand, charge their clients for trades, but most of their compensation comes from the companies that create the funds they sell. In other words, their fees are built into the cost of the products they sell.

Although commission brokers often bill themselves as financial advisors, you can also see them as the sales force for the insurance and investment industry, earning an incentive payment each time you purchase a financial product they recommend.

Each of the three models creates different incentives, which is why it pays to understand them. A fee-only or fee-based advisor might be tempted to put you into investments that are too risky for you in the hopes of quickly building up your assets. A commission-based advisor might sell you a fund that’s not the best choice for you because he or she is earning a higher commission on it.

What Percentage of Assets Under Management Do You Charge, and Do You Also Charge a Flat Fee?

Some advisors charge an hourly rate or flat fee to analyze your assets (including real estate, retirement accounts, personal savings and life insurance policies) and create a comprehensive financial plan based on your goals, tax implications, time horizon and risk tolerance.

To manage your portfolio on an ongoing basis, however, they typically charge an annual percentage of your assets under management.

The industry average is roughly 1 percent, but fees can range from 0.81 percent to 2.08 percent, according to Toronto-based PriceMetrix, which tracks investment industry fees in the U.S. and Canada.

That may not sound like much, but the percentage you pay makes a big difference in your long-term return.

For example, an investor with a $500,000 portfolio earning 7 percent per year would be sitting on $2 million after 20 years. Had she paid an advisor 1 percent of his assets during those years, however, her account value would fall to $1,655,000—a difference of $364,000.

“The single most-important thing you can do to improve the performance of your portfolio is to reduce your costs,” Roper said.

Do You Sell Load Funds?

If you work with a commission-based advisor, you will pay a transaction fee each time you trade a security—which can range from $10 at discount firms to several thousand dollars at larger institutions. That can add up fast if you actively trade.

It’s the hidden fees, however, that hurt the most.

Brokers who work on commission collect a one-time sales fee for selling load funds to their clients. Load funds are simply mutual funds that include a sales charge.

In the case of front-end load funds, investors pay 3 percent to 8 percent of the amount they are investing, some of which gets passed directly to the broker in the form of a commission.

Are There Any 12b-1 Fees?

Commission-based advisors and some fee-based advisors also collect 12b-1 fees from mutual fund companies when clients purchase shares of a fund that they recommend—ongoing payments that continue for as long as their client owns the fund.

That fee, which typically is not disclosed to investors, gets passed along to investors through the fund’s elevated expense ratio.

To offer some perspective, mutual fund expense ratios can range from 0.2 percent for index funds to up to 2 percent for actively managed specialty funds.

Will I Owe Surrender Fees if I Bail?

Some insurance products and annuities sold by commission-based advisors also include a surrender charge, in which the client forfeits 8 percent to 10 percent of the funds they contributed if they cancel their policy before a certain number of months—or years.

When vetting your financial professional, it’s important to ask the right questions. And demand honest answers.

“We interviewed several advisors,” said Michael Teems, a retired engineer in Annapolis, Md., who performed his own due diligence before selecting a financial planner to help convert his nest egg into income.

“One advisor we went to was more of a salesman, with a back room full of people who were there to help me pick investments,” he recalled. “I wasn’t naive enough to think that some of these planners weren’t going to get paid. Everyone who touches the money gets paid.”

Teems asked directly how much their time was going to cost and his queries were met with candor. Ultimately, he and his wife opted for an independent advisor, paying slightly more than 1 percent on assets managed.

“It’s important,” Teems said. “You have to know what you’re getting.”

US Expects First Cut in Debt Since 2007

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MyWorld copyMy Comments: There is good news here and there if you look beyond the crisis de jour.

By: Michael Mackenzie / Published: Tuesday, 30 Apr 2013 / The Financial Times, London

The U.S. Treasury expects to pay down debt in the second quarter of 2013 as the budget deficit that has dominated national politics starts to shrink.

The forecast of a quarter of net debt repayment for the first time since 2007 shows how tax increases, a cyclical recovery in tax revenues and a squeeze on spending are ratcheting down the budget deficit.

Ahead of an announcement on Wednesday on the details of its quarterly borrowing schedule, the Treasury said it expects to repay a net $35 billion in the second quarter, compared with a February estimate that it would have to borrow $103 billion.

“The decrease in borrowing relates primarily to higher receipts, lower outlays, and changes in cash balance assumptions,” said the Treasury.

The second quarter is always the best for government cash flow because tax returns are due in April. The Treasury expects to issue $223 billion of debt again in the third quarter.

But the return to one quarter a year of debt repayment highlights how aggressively the US has cut the deficit this year, despite concerns about growth and political wrangling over tax and spending decisions.

Nominal spending is basically unchanged since the final quarter of 2010, one of the longest periods of restraint in postwar U.S. history. Meanwhile, tax revenues have picked up with the economic recovery, and the expiration of a payroll tax break at the start of the year is adding about $10 billion a month to revenues.

“The paydown this quarter—the first since 2007—is emblematic of the turn in budget finances from horrible, to grim on their way to steadily better,” said Eric Green, chief economist at TD Securities in New York.

The International Monetary Fund forecasts that the U.S. will borrow 6.5 percent of gross domestic product in 2013, down from 8.5 percent in 2012 and 10 percent in 2011. But analysts at Goldman Sachs estimate that in the first quarter of 2013 the deficit was running at a cyclically adjusted level of just 4.5 percent.

Bond investors have been expecting better U.S. fiscal data. Expectations of a falling net supply of Treasurys helped the yield on 10-year Treasury notes to approach their lows for the year on Monday, briefly dropping below 1.65 percent.

Steven Ricchiuto, chief economist at Mizuho Securities, said the Treasury borrowing figures for this year suggest “no government funding pressure on the markets. This fits nicely with our call of returning to the July 2012 low in yields.”

Ian Lyngen, strategist at CRT Capital, said falling net issuance while the Fed buys $45 billion of Treasurys a month represents “a shift that will surely keep downward pressure on yields.”

He added: “As an aside, the improving fiscal situation of the U.S. Treasury does allow more time before the debt-ceiling becomes an issue again.”

Austerity Exposes the Global Threat from Tax Havens

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My Comments: Unless you have been to the Cayman Islands, or happen to make far more money than you actually need to live your life, the idea of an offshore tax haven is pretty remote. You’ve heard about them, but since they are so far removed from your reality, they seem to stay under the rug. Here’s an article from the Financial Times that suggests we should pay more attention to what they represent for all of us.

By Jeffrey Sachs

The curtain has been pulled aside on the once secret world of tax havens, and the scale of abuse is nearly beyond reckoning. Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system.

How many politicians and political parties have secret accounts abroad? Inevitably, given the nature of the arrangements, we cannot say for certain – but the list of those that have come to light is long. US presidential candidate Mitt Romney was found to have huge wealth in the Cayman Islands, never adequately explained. In France, Jérôme Cahuzac has resigned in disgrace from his position as budget minister following the revelation that he held a secret account in Switzerland. He has since been charged with tax fraud. Spain’s ruling party has been making payments from secret Swiss accounts for years. One senior Greek politician has been sentenced to jail for falsifying financial declarations. Many more revelations will come, especially now that investigative journalists have their hands on the records of hundreds of thousands of offshore accounts.

Groups such as Apple, Google and Starbucks have been shown in recent months to have used outlandish accounting gimmicks to shelter their profits. These include Google’s claim, approved by the US Internal Revenue Service, that its intellectual capital resides in Bermuda. There are thousands more like them working with the tax authorities to keep their money out of reach. Banks such as HSBC and UBS have been caught in the money laundering that facilitates this process.

How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn.

The havens serve countless purposes, yet not one is for the social good. They support massive tax evasion. They underpin a global system of bribery to corrupt officials. They service the accounts of drug runners, arms traders and terrorist groups. They create veils of secrecy through shell companies, which allow tax evasion, land grabs and environmental destruction.

The prime movers of the world’s tax havens are the US, Switzerland and the UK. Indeed, many of the leading havens, including the British Virgin Islands, Cayman and Bermuda, are British Overseas Territories. The secreting of trillions of dollars in the Caribbean has been undertaken with the support of America’s IRS, and with the approval of the US political class and Wall Street.

These playgrounds of the rich and powerful were largely hidden from the public’s view during the long financial boom. In the new world of austerity following the 2008 crash, however, they are increasingly seen as a cancer on the global financial system that must be excised.

The public’s animus was greatly accelerated by the Cyprus crisis. The island has for many years been a notorious secrecy-and-tax haven, especially for Russian money. Yet this was winked at rather than controlled. Then Cyprus blew up – a reminder of how an unregulated financial centre can quickly turn into a mortal threat to the world economy.

Many of the reforms that are required are obvious. All foreign bank accounts in any jurisdiction should be reported back to the national tax authorities of the account holders. Unreported incomes diverted to overseas accounts in the past should then be taxed at national rates with penalties for evasion. The thousands of hedge funds and corporations domiciled in the Caribbean for operations in the US and Europe should be required to redomicile in the US and Europe. Beneficial ownership should be disclosed on all foreign-owned companies.

Angela Merkel, the German chancellor, François Hollande, the French president, and David Cameron, the UK prime minister, have recently acknowledged the need for a serious clampdown, yet the real actions still lie ahead. Barack Obama, the US president, has spoken in the past about cracking down but has not said much recently. All eyes are now turning to US and European leaders in advance of the summits of the Group of Eight leading nations in June and the Group of 20 in September to see whether the politicians are beholden to the needs of the public or to heedless and destabilising private greed.

The writer is director of the Earth Institute and author of the forthcoming book, ‘To Move the World: JFK’s Quest for Peace’