Financial Idea's Blog » Financial Ideas

What About This “Double-Dip” Thingy?

mlarkin19 — Sun, 17 Oct 2010 03:25:48 +0000

For the last few months, this term has been thrown around with almost complete disregard for the likelihood of it happening. But first of all, what is it?

It refers to a fairly significant pull-back in the economy, specifically in the major stock market indices such as the Dow and the S&P 500, as well as consumer sentiment about the near future, very shortly after a previously significant pull-back followed by a partial recovery. To make it simpler, picture a “W” in your mind, where the middle of the “W” doesn’t come completely back to the top, and pretend it’s a graph of the economy.

OK, so that’s what it is, and it’s what we hear about almost every day if we tune into any financial broadcasts or news programs. “This group of economists is saying…..”

So could it really happen? Sure it could happen. It did happen in 1981.

A more relevant question, though, would be “Is it very likely to happen?”

To that, the answer is “no”. In fact, since the Great Depression which began in 1929, the United States has had 12 recessions, including the most recent one in 2008 – 2009. In those 12 recession, we have had exactly 1 double-dip – the aforementioned 1981. And anyone who remembers 1981 also remembers runaway inflation exceeding 15%, home mortgage rates and CD yields in that same range.

This was the direct result of the Federal Reserve jacking up interest rates quickly in an effort to curb inflation and it didn’t work – so we can effectively blame that sole double-dip on something the government caused to happen – and that’s not happening now.

Bottom line? You have better things to think about. Go do that.

Want to know more? Schedule a no-obligation phone consultation at http://www.whattoinvestinnow.com.

Let’s talk, and create a plan that’s right for you and your family.

3 Holiday Shopping Stock Picks (NILE, SIG, HAS, MAT, BBY, AAPL)

Investopedia.com Headlines — Fri, 15 Oct 2010 06:00:00 +0000

Find out where the hot spots are going to be this holiday shopping season.

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Should I Invest Internationally?

mlarkin19 — Sun, 26 Sep 2010 15:05:35 +0000

Maybe. This concept, like most investing concepts, is a very individual thing and is not necessarily the right thing for everyone. The explanation given here is not in any way intended to encourage you to invest internationally, only to understand the idea so that you can properly consider it.

It seems obvious that investing internationally means buying stocks, mutual funds or bonds which are issued by companies not based in the United States, but do you know what those companies are or what they do? We can guess with some names, like China Mobile (CHL), for example, and we might be mostly right, although they may also do some things that would surprise us.

Then there are harder ones, like Diageo (DEO) from the United Kingdom. What do they do? They’ve built themselves up over the years to where they now own brands like Guiness, Moet, Johnnie Walker, Smirnoff, Captain Morgan and Tanquery, among others. They also own Louis Vuitton, the maker of really expensive things for women.

So, is that all you need to know? Not hardly. First of all, buying shares of these stocks isn’t possible for Americans. What we buy instead are American Depositary Receipts (ADRs), which could represent a single share of stock, a fractional share, or even multiple shares of that company, and which avoids the potential problems of exchange rate changes. This is a good thing, but it’s still not the only thing you need to know. There are other considerations such as foreign tax laws, remembering that some of the dividends you get paid will be withheld as foreign tax and which you have to claim credit for as tax paid on your US tax return.

Even more important is the possibility in some investments that the country’s laws may be such that the country takes away some important privilege that the company uses, completely changing the suitability of the investment for you. Does your investing style, or risk tolerance, allow for that possibility?

(Disclaimer: I’m not saying that any of these considerations apply to the 2 stocks mentioned above.)

If not, you might want to consider the fact that you can, despite the “obvious” idea above, invest internationally in effect by buying the stocks of companies which earn a considerable portion of their revenue each year from countries other than the United States.

Qualcomm (QCOM), for example, earns a whopping 94% of their revenue elsewhere! Coca-Cola (KO) earns 76% of their money outside the United States! McDonalds (MCD) and Hewlett-Packard (HPQ) come in at 65%, with Apple (AAPL) and 3M (MMM) both at around 63%. That’s a pretty interesting way to go about making sure that your portfolio isn’t completely dependent on the U.S. economy, and that can be a very good thing.

Want to know more? Schedule a no-obligation phone consultation at http://www.whattoinvestinnow.com.

Let’s talk, and create a plan that’s right for you and your family.

Technorati Tags: foreign investments, Invest international, investment strategy, What to Invest In

What Does A College Plan Do For Me?

mlarkin19 — Thu, 02 Sep 2010 17:30:39 +0000

Well, it does lots of things – so where do we start? OK, before the first thing , let’s point out that anyone can contribute to it. That is, you can be our future student’s mom and dad, or grandma and grandpa, or godparents, or just family friends wanting to give a shower gift.
That aside, what it does for everyone involved is make it possible to have enough money for post-secondary education, which goes up at a rate of about 7% every year, double the amount of normal inflation.
This happens as a result of putting together a plan well before the last minute to ensure that your goals can happen. I can’t tell you how many people in my neighborhood are pushing baby carriages with the attitude that they don’t have to worry about that for a long time. Technically, they don’t, but I guarantee it will be a lot more expensive later than it is now. Personally, I’d rather see my clients making realistic choices based on their incomes and lifestyles now, with plenty of time to make adjustments as necessary later, and that means putting together a plan that picks out a price range for various colleges, forecasts the future cost, and lets you know how much you’d need per month, per year or as a single lump sum in order to reach that goal.
Only that way can you know if it’s realistic to want to pay for four years, all expenses, or if your child is going to have to live at home, or some other variant, like you pay for the first two years and they pay for the last two or they go to junior college for the first two years and then transfer to a major university. All of those are valid family value approaches – you just need to know as early as possible what’s possible given your situation.
After that, we can get into the various benefits that a 529 plan offers beyond just having any money at all for the purposes of school.
So, most people ask me at this point, “Is this good for any school?” Or do I have to choose one now? Good news – the program does NOT make you pick a school ahead of time. In fact, there’s not even a requirement that your student go to a four-year university! You can use 529 funds at any institution which accepts U.S. Federal Financial Aid. That includes trade schools and special purpose schools, like cooking school or golf school or a school for private pilots. It also includes some 500 or more universities OUTSIDE the United States.
The only word of caution there is: don’t model your plan based on a junior college somewhere if you’re certain your child is Harvard material. It won’t work.
Another question people have includes, “What about scholarships?” More good news! If your child gets an academic or athletic scholarship which means that you’ve saved too much in the 529, you get to withdraw an amount matching the scholarship to be used for some other purpose, without penalty.
Yet another question is: “What if there’s money left over when they graduate?” Well, there’s a few answers to that. The first is that it doesn’t belong to them in the first place – the way this plan is structured, they are your beneficiary instead and you are granting the money to them to pay college expenses. So, if they have younger siblings, those younger ones can become the new beneficiary. Or, if they want to go past the bachelor’s level to one or more graduate programs, the remaining money can be used there, up to 30 years after high school graduation.
Failing that, you could make yourself the beneficiary and use the remaining funds to pay for adult continuing education later in life. Finally, the worst case, you could just take it out and not use it for education at all, but the IRS will charge you a 10% penalty on that amount. Maybe that’s a big deal that you want to avoid, and maybe it’s not – that’s a case-by-case situation.
Next to last, you don’t have to be a resident of the state where the plan is based in order to participate. For example, the state of Virginia plan is hosted by American Funds, the state of West Virginia by Hartford Funds, Ohio by Blackrock funds, Oregon by MFS funds, Arizona by Fidelity, etc. The only reason to pick a plan from your home state is in the cases where you get a state income tax break for doing so. Not all states offer this, and if you live in one of the states that has no income tax, then it doesn’t matter anyway.
And, last but not least, the VERY BEST PART about 529 plans: if you’ve stayed with this article so far, they are FEDERALLY TAX FREE. That’s right, you start putting money away now, while baby is 1 year old, and it grows until they need it at 18 or 19. All of that growth will never be taxed. Now that’s a sweet deal!
Want to know more? Let’s talk, and create a plan that’s right for you and your family.

Technorati Tags: college plan, Invest in college, pay for school, student loans

Your Kid’s College Loan: Who Should Foot The Bill?

Investopedia.com Headlines — Thu, 02 Sep 2010 15:02:42 +0000

Discover the federal student loan options for both parents and students.

If you could afford it, you’d pay for your kid’s future education expenses and not borrow a cent. But after reviewing your finances and potential scholarships offered, you may realize that student loans will be required to pay for part or all of the cost of college for your entering freshmen.

What are the federal student loan options for both parents and students for borrowing money? Read on to find out.

Technorati Tags: Financial Ideas, Investing strategy, Retirement

All Annuities Are Bad, Right?

mlarkin19 — Thu, 22 Jul 2010 19:10:19 +0000

This is a tricky one for most people, and for a couple of reasons.

One is that people like Suze Orman tell us that they are bad, and therefore they must be. Keep in mind that Suze Orman used to have a federal license for the securities industry, and that she let it lapse. The reason for that only she knows, but one characteristic of having such a license is that you are obligated to tell the objective truth or face possible civil or even criminal charges while perhaps even being barred for life from the industry. If you’re not licensed, you can say whatever you want within 1st Amendment rights. Why she says it is a different story which I won’t speculate on.

A second reason this is tricky is because many of them really used to be bad. While it’s not an absolute rule, it’s true in many cases that annuity contracts written prior to about 2003 lacked some of the really great features that are now available. We’ll get to that in a second.
A final reason comes down to how a professional advisor explains them to you, and whether they fully explain the four basic types of annuities, so that, if one is appropriate for you, you’ll know which type best fits your needs.

So, what is an annuity basically? It is an insurance contract, written by an insurance company, and like with most insurance policies, the company is betting that you won’t live as long as you think you might. This insurance contract guarantees either a specified amount of money which will come to you every month for the life of the contract, or it guarantees a minimum income or a minimum withdrawal which you could, but don’t have to, take every month. The contract runs typically for your life and the life of your spouse, but that’s just one of many choices. You could choose a reduced benefit if only your spouse remains, or no benefit, or you could choose to have a benefit which lasts for your life plus 10 years to any named beneficiary, or even just have it last for ten years and that’s it, even if you’re still alive.

Which choice you make depends on your purpose for the money. Is it to supplement other sources of income, which is most often, or might it just tide you over for ten years after which you plan to sell some rental properties and get income that way? Only a professional advisor, who is preferably not tied to one particular provider, can help you sort through all this.

Annuities are also offered as Fixed or Variable, where Fixed is a pure insurance contract in which you are guaranteed a return, typically small, like 3%, 3.5% or 4%, no matter what the market is doing. Variable can be better or worse than that, as they are based upon the performance of underlying mutual funds. You could have a negative 10% or worse year, or you could have a positive 20% or better year.

Here’s the bell and the whistle about the variable offerings though. In the last few years, many annuity companies have begun to offer “step-up” riders that say in essence, if we have a really good year, it’s all yours, and if we have a year that is less than 5% positive, even negative, we’ll guarantee you 5% positive. Guarantee! And if next year is better than 5%, you’ll get that. The first catch is that, if you have a number of down years in a row, and giving you that more than 5% would still leave them underwater, then they might restrict the gain for that year. The second catch is that, well, this whole guarantee costs money. Not a big surprise, and actually still quite worth it. Now, this is case-by-case, and not necessarily exactly what you should expect, but for example, if it costs you 4% of your total investment to get in to this annuity, it might cost you an extra ¾% to get the guarantee as well. That’s a pretty cheap guarantee in my book.

The next concept is Immediate versus Deferred. This is simple. Immediate means you put money in and you start getting it out next month. This is a frequent choice for someone already retired who wants to protect the money and guarantee a steady income stream. Deferred just means you’re starting to put money in now, but you won’t need it for awhile.

The last concept is something called “annuitization”. That seems kind of redundant, the idea of annuitizing an annuity, but that’s what it’s called. What it is, is electing to lock down the contract, to say, I will never contribute another dime, and I want to know exactly how much I’m going to get each month from now on, and there’s no changing your mind. That has its place, but it used to be the only option, which is one reason some people still think they’re bad.
With the reforms, you can now keep adding after you’ve taken some out, if an inheritance or other windfall comes your way, or you just change your mind. And you can choose to not take any for awhile, even if you’ve already taken some. You do this by getting certain types of annuities that don’t require “annuitization”.

There are a lot of moving parts here, and there are also some tax advantages, but the bottom line is that they can be a very good idea.
Want to know more? Let’s talk, and create a plan that’s right for you and your family.

Technorati Tags: annuities, annuity, Retirement

What’s Wrong With Getting A Big Tax Refund?

mlarkin19 — Mon, 12 Jul 2010 14:21:05 +0000

The obvious answer here seems to be “nothing”. But actually, it’s a big something.

I know many people who tell me that getting a big tax refund is actually a part of their “budget”, because it means they know that every April they can take a family vacation or upgrade their big screen TV or pay off some more debt or whatever it is in their case.

The first bit of honest truth is that these people don’t have a budget. A budget is something you create and live by, with periodic adjustments, which is intended to keep you living within your means and actually saving and investing for your future as well. It doesn’t allow for splurging without planning.

(On that note, before you all click the back button in disgust J, it is still possible with a budget to take a family vacation and upgrade your TV, you just have to plan for it and allocate a bit each paycheck instead of getting wild and crazy every April!)

Last off topic bit about budgeting, make sure that whatever budget form you use, that it starts with you putting down your Gross Income at the top, and the VERY NEXT THING should be how much you can save and invest. If that is 10% of your gross income, you have a pretty good chance of reaching some of your goals. If it’s 20%, you have really good chance of reaching all of your goals. After that comes taxes, housing, insurance, utilities and everything else. Most budget forms have taxes and such right after income, with saving at the bottom. That says “save whatever is left over”, while the message should be “pay yourself first.” Ok, I’ll get off that soapbox for now.

Why don’t you want a big refund? Simple, because it means that you’ve been paying too much every paycheck in taxes, and they’re just giving you back your own money, AND they’re giving it back to you after using it for up to a year, with ZERO INTEREST.

Guess what happens if you’re short in paying them? There’s a possibility of interest AND penalties.

With just a little bit of discipline, you can increase the withholding exemptions on your W-4 form, so that your company withholds a little bit less for the federal government and your paycheck is that much larger. Now, instead of spending that extra because you have it, you add to your budget the capability to save and invest that amount. Now it’s working for you. If you want to save it for a vacation, so be it, it’s still working for you in the meantime, making interest which you get to keep!

That said, you still need to be fully aware of what you need to be prepared to retire someday, and that needs to take the front seat. You can’t borrow for retirement, at least not in this world or not yet anyway, and it wouldn’t make sense for anyone to lend you money you can never pay back. (Don’t get me started on subprime mortgages. J).

Want to know more? Let’s talk, and create a plan that’s right for you and your family.

Technorati Tags: tax deduction, tax rebate, tax refund, US finance

Why Shouldn’t I Use A Discount Brokerage?

mlarkin19 — Tue, 22 Jun 2010 14:03:42 +0000

This is a really great question, especially since many of the most popular investment books available today say exactly the opposite.

They tell you that you can do it yourself, and for a lot less money, and you know what? They’re right! But as you probably suspect, there’s a hidden catch that they’re not telling you about. The catch is you.

You see, most of us are really skilled at one or more things, but there’s thousands of things we could be skilled at. I could walk down the street and stop any one of you and find out maybe that you’re a top-notch web designer, or a first-rate auto mechanic, or that you run an Alaskan fishing expedition, or any number of other possibilities that I don’t do.

Could I learn Adobe’s Photoshop and InDesign? Sure. Would that make me a web designer? Nope. Could I go to a nearby technical college and learn how to be an auto mechanic? Yes, but that wouldn’t make me a good one. And in the interest of full disclosure, I do my fishing at the local Kroger. I could certainly save some fees on those tasks by doing them myself, and so mathematically the do-it-yourselfers are correct, but that’s not really the issue when it comes down to it.

So can you invest by yourself and save some fees? Yes, you can. But that doesn’t make you good at it. And it doesn’t mean you have time for it. For example, you could get totally up-to-speed on all 4,000 or so mutual fund choices out there by reading their prospectuses, free to the public. If you read only five of those a day, you’d know everything there was to know about them in only 26 months! Doesn’t that sound like fun? J

And what’s more, you are emotional about your money – you can’t help it. The same thing is true for everyone else, and they can’t help it either. In fact, 80% of all investors lose money because they don’t have the experience to do what seems intuitive to all of us: that is, buy low and sell high.

Why is that? Well, buying low is pretty terrifying. How many people do you know who put a ton of money into the market on or around March 9^th, 2009? That was the day of the most recent absolute market low at 6,547.05, as compared to today’s close (June 17^th, 2010) of 9,816.49. If they had, they could be looking at gains of 50%. Of course, I could point you to over 120 individual stocks which have gained by more than 100% in that time. Now, did I know about that in advance? Am I like those guru’s all over the web selling you newsletters about their 1000’s of percent gains overnight? No. I just knew it was a pretty good bet, though not a sure bet (because there isn’t any) and I’m willing to talk to naturally concerned people about how it works.

On the opposite side, selling high tends to not work so well either, because that’s when the newspapers and television are all crowing about how wonderful everything is, again, finally. Who would sell then, when that great pick you made is headed to the moon (even though it’s not)? Sounds crazy, but that’s how we are.

Briefly back to the car mechanic analogy: would you study mechanics for a few minutes a week, open your hood, take off a few things and put on a few other things and then go tearing off down the road expecting the best? I hope not, and neither should you. That’s why we need professionals who take the time to hear us and coach us, and that’s what I’ll do for you if you want.

Want to know more? Let’s talk, and create a plan that’s right for you and your family.

Technorati Tags: discount brokerage, How to Invest Stock, Investing Stock, Learn To Invest, Stock Market Education, What to Invest In

Royalty Income Trust

Investopedia.com Headlines — Tue, 22 Jun 2010 13:00:00 +0000

Term of the Day for Tuesday, June 22, 2010

Technorati Tags: Financial Ideas, Investing strategy, Retirement

Investing With A Purpose

Investopedia.com Headlines — Wed, 16 Jun 2010 15:26:21 +0000

Setting goals is the first step in determining which investment vehicles are right for you.

Technorati Tags: Financial Ideas, Investing strategy, Retirement