admin | September 10, 2012

Mastering Your Plastic

Purchasing methods are constantly evolving and becoming increasingly convenient over time.  Consumers went from having to walk a herd of cattle to the market for trade, to lugging around a wallet of cash, to now holding all their wealth in a sliver of plastic.  Credit cards have made the world of transactions simpler and easier to navigate for consumers around the world.  Large purchases can be made without the cash up front.  Many card companies offer various reward, cash back, or points promotions for use.  Online shopping has become a breeze.

 
Credit cards have the ability to make any old consumer a powerful individual investor.  But, with great power comes great responsibility.  The number of people struggling with credit card debt in America is astronomical.  The invincible feeling that people get from swiping that card can often leave them devastated.  That devastation is ubiquitous in their lives, affecting their credit scores, their ability to access loans, and their financial history in general.  Credit cards are necessary and advantageous tools for most people, and, if used properly, can be a huge asset to your spending habits, but it’s important to know the facts about your card.

 
That shiny piece of plastic poking out of your wallet can be death trap, if you don’t know how to navigate the terrain.  There are a few things that you need to be aware of before you start swiping through the checkout lines.

 
1)      Interest rates are limitless- When you sign up for a credit card, you agree to a certain interest rate, hopefully a low one.  The scary fact is that in most cases that rate can be raised to whatever the credit card company likes.  There oftentimes are state laws in place limiting how high those rates can be set, but many of the largest, and most popular, credit cards are issued from federally chartered banks that don’t have to follow those state laws.  The CARD Act (the Credit Card Accountability, Responsibility and Disclosure Act) guarantees that rate for the first year of the contract, but after that, the rate is free game for any increase they like.  On the upside, the card company must notify you 45 days in advance of the increase, and the new rate only applies to charges after that change date, and not your current balance.

 
2)      Only domestically reliable-  Anyone taking a trip out of the country might think that carrying a credit card, as opposed to a fanny pack full of Euros, may seem like a great idea, but many card users could soon find themselves searching for the German translation of the word “denied.”  The magnetic strip found in most credit cards in the U.S. isn’t often used overseas.  EMV cards, on the other hand, are much more functional.  Those EMV cards, which are named after their developers, Europay, Mastercard and Visa, contain a microchip attached to an account instead.  You can ask your provider for an EMV version of your card for your trip that should serve you much better.

 
3)      Fixed rates aren’t always fixed-  Fixed rates always sound good in theory.  You know what you’re signing up for is something you can depend on continuing.  Well, the fixed rate that is here today could easily be gone tomorrow.  Credit card companies are able to change your interest rate and the calculations that go into determining that rate.  Your fixed rate could easily become variable if the credit companies so desire.  If the rate does becomes variable, the company must again give you 45 days notice before an increase, but if it becomes variable, and the rate stays the same or goes down, they don’t always have to notify you.  And, if they want to decrease your credit limit or close your card entirely they don’t have to tell you until after the deed is done.  If this does happen, the company is required to send you a copy of the credit score that caused the change.

 
4)      Tardiness is penalized-  This is one of the most obvious but most troublesome aspects of using credit cards.  The due date on your statement is the date that your payment must be received, and if you pass this date, you could be slammed with a fee.  But there are a few rules that protect consumers if they find themselves a little behind schedule.  Your issuing company cannot report your delinquency to the credit bureaus until your bill is late by an entire month.  This means, unless you are 30 days late, your credit score won’t be hindered.  Also, your rate can’t be raised unless you are an entire 60 days past due.  So being a few days late will cost you some money, but not your record or your rate.
Credit cards are the best thing since sliced bread for many consumers, but if you don’t know your way around the rules, you could easily find yourself swiping your life away, almost literally.  Manage your spending habits, read the fine print, and swipe within your means and you should find yourself ruling the plastic world in no time.

Photo courtesy of: http://koehlerlaw.net

Category: Budget, Weekly Blog | Tags: , , , , , ,
admin | September 4, 2012

Are Annuities a Key To Your Future?

With the future of pensions up in the air, Social Security on thin ice and 401(k) fees causing concern, more and more people are turning to other types of funds to lead them into retirement.  One of their attractive options? Annuities.  Unlike other investments, annuities are held through the insurance industry and are known for their flexibility which is lacking in many other funds.  For some people these annuities are their main investment, others use them simply as a surplus income.  Retirement plans are different amongst everyone, but there are a few reasons why you should be giving annuities a second look.

  • Flexibility-  As mentioned, Annuities offer more flexibility than most other retirement funds.  In your career, you went to work every day and earned money.  In your retirement, it may seem like you wake up every day and simply spend money.  Vacations, family get togethers, shopping trips, etc.  It’s important to ensure that you have money coming in that can cover those expenses.  One of the most popular annuities is a Single Premium Immediate Annuity (SPIA) in which one lump sum payment guarantees you a monthly paycheck for as long as you wish it to last.  It simply acts as a pension plan organized and determined by your wishes.
  • Lifetime Payments-  With the life expectancy rates seeming to climb every day, one of the biggest risks of retirement planning is longevity.  Many types of funds can leave holders worried whether the income will last them for their entire lives.  Of course pensions and Social Security are a lifetime option, but the future of both of those funds is beginning to be questioned by many.   The SPIA is one of the only options that ensures lifetime payments.  The payouts of a SPIA are determined by your age, interest rates, and time of purchase amongst other factors.  Additionally, holders can determine whether they want the payments to cover a single life of married couple.  They offer the longevity needed paired with the flexibility preferred.
  • Avoiding Risk-  Everyone saw the devastating effect a market turn can have on the investment portfolios of recent and soon-to-be retirees.  It can be a scary thought for anyone approaching that age.  Annuities, with all their options and flexibility, offer a security from these market effects without enduring the poor interest rates in options such as money markets.  Certain annuities protect your principle while investing in stock mutual funds, while others put your money in the market but guarantee your investment won’t dip below your original input.  It’s quality peace of mind with the opportunity for growth.

With all the advantages of annuities, some people might run out the door and get themselves one ASAP, but there are certainly other things to consider before making any moves.  Because of the options and flexibilities involved with annuities, they can be confusing and technical in terms of their contracts.  Before you put your name on the dotted line, make sure A) you have an advisor you can trust and B) you get all of your questions answered.  Ask about commission fees, fees for early withdrawal and surrender charges.

 
Another danger lies in interest rates, which can often have a great effect on the size of the payments you receive each month.  The current interest rate is one of three factors determining the payment size, but it does have a significant effect on monthly changes.  Try to find annuity options with a guaranteed interest rate that you know you can count on.

 
With all the changes shifting through the retirement funds and what seems to be the beginning of the end of pensions, annuities are becoming an attractive and viable option for most retirees.  Even if people aren’t ready to abandon the more traditional offers, annuities can provide a comforting supplemental income.  Take the time to look at the options of annuities and see if they could benefit you.  It could pay off later.

 

Photo courtesy of stage2planning.com

Category: Annuities, Investment, Retirement Resource, Uncategorized | Tags: , , , , , , ,
admin | August 29, 2012

The Week in Review – August Wrap Up

Last week investors faced an array of negative news –– from declining manufacturing activity in China and the eurozone to a poor profits picture among large US corporations to continued concerns about weakness in Greece and Spain.

 

Greek Prime Minister Antonis Samaras spent the week lobbying key leaders to grant the struggling country an additional two years to reduce its deficit to an acceptable level.

 

In a week in which the Standard & Poor’s 500 Stock Index hit its highest close in four years, the broad US benchmark also had its worst week in two months. US Treasury yields fell throughout the week as their prices rose on expectations that government bond purchases would increase through a possible third round of quantitative easing (QE3) while negative sentiment drove investors away from riskier assets.

 

Oil prices continued their recent rise until Thursday’s spate of weak economic reports drove crude oil futures down by $1 to just above $96. Overall, oil prices have risen by more than 9% in August.

 

Amid this environment the DJIA was down -0.9%, the S&P 500 was down -0.5%, the Russell 2000 was down -1.3%, the Global Dow Ex-US was down -0.2% while crude oil rose 0.2%.


Chinese manufacturing activity continued to contract in August, based on the preliminary HSBC China Manufacturing Purchasing Managers Index. The closely watched gauge fell for the tenth straight month, reaching 47.8 in August from a final reading of 49.3 in July. Because surrounding countries, including Japan, South Korea and Taiwan, depend heavily on China to import their products, China’s ongoing weakness weighs heavily on all of Asia as well as the rest of the global economy.

 

Eurozone business activity declined in August at roughly the same pace it did in July, with the composite purchasing managers index at 46.6, up slightly from 46.5 in June. German business activity fell at its fastest pace in three years in August, with its preliminary PMI dipping to 47.0. With the eurozone reporting contracting numbers for two of the three months in the third quarter, it is now almost certain that the region will officially enter its second recession in three years in this quarter.

 

The latest data include a rise in sales of new and existing homes plus a solid jump in the price of US homes. Existing home sales increased 2.3% in July from June, the National Association of Realtors reported. Sales of new homes rose 3.6% in July from June –– and 26% from July 2011 –– to reach a two-year high, according to the US Department of Commerce. Home prices had their largest quarterly increase in more than six years, the Federal Housing Finance Agency reported. Inventories of new homes fell to their lowest level since 1963, when the government started tracking it.

 

Other than a strong set of housing data, US economic reports were lukewarm. The preliminary manufacturing Purchasing Managers Index improved slightly in August, to 51.9 from 51.4, surpassing other major global economies. Durable goods orders increased 4.2% in July, which was more than expected, driven by strong demand for cars and airplanes. However, a key measure of business investment, orders for non-defense capital goods excluding aircraft, fell by 3.4%.

 

Initial jobless claims rose slightly for the week ended 18 August, to their highest level in five weeks, with the four-week moving average also rising.

 

Consumer confidence declined to its lowest point since January, as the Bloomberg Consumer Comfort Index dipped to minus 47.4 for the week ended 19 August. The US Federal Reserve Board is slowly moving closer to taking action to stimulate the economy, based on the minutes of the Fed’s most recent meeting, held 31 July to 1 August. Consensus is apparently growing for the Fed to take stimulus action barring “a substantial and sustainable strengthening in the pace of economic recovery.” Speculation continues on when that might occur and what shape it might take, but anticipation will grow as the September meeting of the Federal Open Market Committee approaches.

 

Japan recorded a much larger-than-expected trade deficit in July, almost doubling the forecasted gap, as exports sharply fell because of weaker Chinese and European demand.

 

The UK economy shrank -0.5% in the second quarter, based on the second estimate by the country’s Office for National Statistics. While the revised number was better than the preliminary estimate of -0.7%, the country’s gross domestic product shrank by -0.3% and -0.4% in the two previous quarters, and its economic growth has been flat for two years.


Hewlett-Packard posted its worst-ever loss in its fiscal third quarter, as it was hurt by a steep sales decline along with heavy restructuring costs and a $9.2 billion write-down related to its 2008 acquisition of Electronic Data Systems.

 

Dell joined rival computer maker H-P in announcing deeply disappointing results for its second quarter, as its earnings fell 18% on an 8% drop in revenue.

 

Cnooc, China’s largest offshore oil and natural gas producer, posted a 19% drop in its net profit for the first half of 2012. Cnooc still expects to meet its yearly production target as it aggressively attempts to acquire overseas shale-gas and oil assets. Cnooc recently announced a $15 billion plan to acquire Canadian energy firm Nexen.

 

Best Buy reported sharply lower quarterly earnings compared with a year earlier on a steady decline in same-store sales. Same-store revenues fell -3.2% in the latest quarter, marking its eighth such decline in the last nine quarters. Best Buy is suffering from a sharp shift among consumers to lower-margin phones and tablets.

 

Lowe’s reported a 10% decline in second-quarter earnings as same-store sales declined slightly and profit margins tightened.

gameinformer.com

Category: Annuities, Finance, Investment, Portfolio Growth |
admin | August 27, 2012

Borrowing From Your 401(k): A Financial Sin

When we put money into our retirement accounts we do so for a specific purpose: retirement.  All the money you have funneled into your 401(k) is supposed to buy you that dream retirement lifestyle you spent your entire life working toward.  But unfortunately, more and more people are finding that life can throw them curveballs that, in turn, can throw off their financial plan.  Often times, when people find themselves in a financial bind, they find it hard to ignore that shiny apple hanging in front of them in the form of their 401(k).

 
Far too often people are reaching out to pick that apple and borrow money from their 401(k).  The reasons for their need varies from home purchases, to their kid’s college tuition, to a myriad of other financial emergencies.  Most people who make this move know that it’s a “forbidden” action, but what many people don’t understand is why.  What is the danger in picking that apple and borrowing money from your 401(k)?  If more people knew the consequences, it would be hard to believe that many of them would make the same decision.

 
So what’s the big deal about borrowing from your 401(k)?  What are those consequences that your financial advisor seems so concerned about?  Here are just a few.

 

  • Paying back means you’re not paying in- After you borrow from your 401(k), what you would have contributed to add to your funds now will go towards simply trying to pay back what you took.  Anyone planning for retirement understands the power of time in terms of compounding your money.  That is what is driving your growth.  If you stop paying in and adding to your total, you lose out on all of that potential growth.

 

  • Tax Trap- When you pay back a loan from your 401(k) you do so with after-tax money.  When you retire, and take this money out later, it gets taxed again like the rest of your 401(k) contributions.  Essential this means you are paying a tax twice for that single amount of money, both as your pay it back now and as you take it out later.

 

  • Job Insecurity = Loan Insecurity-  When you borrow from your 401(k) you typically have a set time period to pay it back, usually within five years.  This may seem acceptable, but this changes if you leave your current employer.  If, for any reason you stop working for that company, you could be forced to pay back the loan much sooner, possibly in as little as 30 days.  If that new, incredibly abbreviated time frame isn’t possible for you, you will make up the difference in penalties and fees.

 

  • Creditor Vulnerability- When your money is inside of your 401(k) it is in something of a safe-haven from creditors.  They are unable to touch it.  This changes as soon as you pull any money out of that plan.  At that point, whatever you took out is now fair game for any creditors to go after.

 

  • Short Term Solution- In many cases, borrowing from your 401(k) is like using a band-aid to cover a bullet wound.  If you are in a position where you don’t have the funds to cover your bills, for example your mortgage payments, pulling money from your 401(k) will only stall the inevitable.  It isn’t a long term solution and it doesn’t give you plan to create a long term solution.  Not only does it delay the growth of your retirement finances, but it often times will leave you just as injured as you were before.

 

So despite the fact that your 401(k) might look like the perfect solution to a financial shortage, the consequences might be harsher than you know.  If you layout all the effects of picking that forbidden fruit you might think twice before you take a bite out of the apple of your future.

 

Photo courtesy of shine.yahoo.com

Category: Finance, Investment, Weekly Blog | Tags: , , , , , , , , , ,
admin | August 20, 2012

Taking Advice from TV “Financial Advisors”? Might Want to Get A Second Opinion!

Recently I came across this video on YouTube of the “financial expert”! Now don’t get me wrong there are some good points in getting out of debt and debt consolidation, but maybe when it comes to financial expertise, ought to leave that to a qualified advisor.

 

Here is first of link to video please watch it then read:

 

Recap: This Scenario is a family making an average income of $40,000 per year, with 2 kids ages 2 and 4. He recommends 20 year term life insurance (which I believe in this scenario is the needed choice), ‘if they are taking advice and investing 15% into their 401k per year, in 20 years the couple will have between $500,000 and $700,000 saved. Also note they did a 15 year mortgage (which is about one and half times that of a 30 year mortgage). This sounds good in “theory”, but let’s really take a look and see how much damage this advice has just done when this scenario ends and the husband passes away at the end of our 20 year period.

 

Flaw 1 – a family of 4 with a household average income of $40,000, is supposedly saving $6,000 per year ($500 per month), leaving them $34,000 of income (taxable), being in a low low tax bracket they should be taking home around $30k – $32k. What family of 4 can survive on $30-$32k per year income, groceries, mortgage, insurance, vehicle, etc…That’s an income of approx. $2,600 per month after taxes, give me a break! If you think he can afford $500 per month, taking home $2,600 as opposed to $3,100, it’s highly doubtful.

 

Flaw 2 – 15 year mortgage on $100k mortgage loan would be around $1,000 per month, a 30 year mortgage would be around $700 per month. So if they took the supposed 15 year mortgage now they have income of $1,600 per month, left for vehicle, insurance, gas, groceries…can you see how this is panning out? If car note and fuel are $600 per month, that now leaves $1,000 per month for groceries, also don’t forget about those pesky bills, you know electricity, water, gas…

 

Flaw 3 – let’s analyze the numbers for that 401k payment of $6,000 per year ($500/mo). He states that at the end of this 20 year period the spouse will be left with $500,000 – $700,000 dollars (remember husband dies and life insurance expired). First off in order to end up with $500,000 to $700,000 his 401k must have had a return of 11% to 13% CONSISTENTLY EACH AND EVERY SINGLE YEAR! Has this ever happened in the market?? NO! Let’s do a reality check with REAL NUMBERS! Stock market average is approximately 6.8%, mutual fund fees in a 401k average approx. 0.8% leaving an average rate of return of 6%. This is reality folks and a huge reality check. If he got the average (which statistically most Americans earn below average returns), in 20 years, his 401k would be worth $233,000. Not to mention the $233,000 is also TAXABLE MONEY!!

 

Flaw 4 – Spouses typically marry around their age group, so our scenario started when the husband was age 32, and he kicks the bucket at age 52, so his spouse his most likely around that age. What is the rule on 401k’s/IRA’s in regards to a penalty taking funds out before age 59 ½?? She has a real dilemma now because she needs to live on the money, to avoid an early penalty from the IRS, she can take the lump sum of the 401k, BUT it’s still due for income tax and if you add her now deceased spouses income of $40,000 for his final year, plus the $233,000, she has now a taxable income of $273,000 in that year, putting her in a much higher tax bracket. OR, she rolls it over into a spousal IRA but has to deal with the under age 59½ rule and take a 10% penalty on any funds she pulls out prior to that age, PLUS again the income taxes due on those monies. So not only is she now trying to live on $233,000, she is paying income tax PLUS a 10% early withdrawal penalty. If she stretched that money out over 20 years, she would have a whopping $970 per month (taxable). Yes I said $970 per month taxable which runs out in 20 years.

 

Wow, this just makes me cringe!! Financial Advice without really taking a look in depth at the numbers OR the consequences for this advice is what can truly hurt and damage a family financially for the remainder of their lives. This advice left a family in reality with no life insurance, and $233,000. Even if a house is paid for, who can eat, live, pay bills, drive a car (will have to have a new/newer car from time to time), on an income of $970 per month??

 

Just in case you want to know my credentials:

Evans Financial Group May 2001 – Present

May 2001 – Bachelor of Science Degree in Financial Analysis and Insurance

Million Dollar Round Table Member for 9 years: 5 years Court of the Table (top 2/3 of 1% of financial advisors in the world, yes the entire world), and most recently achieved Top of the Table (top 1% of 1% of advisors worldwide that translates into .01% the best of the best).

Court of the Table

Court of the Table members distinguish themselves within the industry through their superior performance by producing at a level three times that of MDRT membership requirements. Achieving membership in MDRT’s Court of the Table is a career milestone attained only by those who have demonstrated exceptional professional knowledge, client service and ethical conduct. Each year, more than 3,500 MDRT members qualify for the Court of the Table.

Top of the Table

Million Dollar Round Table’s Top of the Table is an exclusive forum for the world’s most successful life insurance and financial services professionals.  These MDRT members are committed to providing exemplary client service while displaying the highest standards of ethics and professional knowledge.

Top of the Table members exchange advanced sales and productivity ideas and develop interpersonal relationships among an international network of leading insurance and investment financial services producers/advisors. All are members of MDRT, The Premier Association of Financial Professionals, and have distinguished themselves by producing at a level six times that of MDRT membership requirements.

 

Colin M. Evans CAS

Category: Finance, Investment, Weekly Blog | Tags: , , , , , , , ,
admin | August 16, 2012

Guest Blog: Retirement Roulette The Sequence Of Returns

Each line of the chart below represents a row of 70 year olds, all born on New Years Day in sequential years, retiring with $100,000, which began withdrawing $6,000 a year on their 70th birthday.

The first to turn 70 (the blue line) began withdrawals 1 January 2000, the second to turn 70 (the pink line) began in 2001, the third (the yellow line) in 2002, and so on. The right side of the chart shows how much each has left in their account on 1 January 2010 based on movements of the S&P 500. The final column states the return they would need to earn each year from today forward to be able to continue to withdraw $6,000 a year until age 100.

Explanation: If you started withdrawing $6,000 on 1 January 2009 at age 70 it is now 1 January 2010 and you are now age 71, your account is worth $116,043, and if you earn 2.94% a year you can keep taking $6,000 for 29 more years. If you began withdrawals in the middle of the last decade (04 to 07)
you now have $60,000 to $70,000 remaining of your $100,000, meaning you need to earn roughly 8% a year from now on for your remaining funds to keep paying out $6,000 a year until age 100. But if you retired in 2000 you’re now 80 with $19,258 left. You’d need to earn 31.02% to make it to 100.

What this shows is the average return earned may be far less important than the sequence in which the returns occur. If a bear market happens at the start of retirement (the EBY or Early Bad Year Effect) the retiree’s portfolio maybe unable to recover and this may result in insufficient funds in later years. Using
immediate annuities or annuities with guaranteed lifetime withdrawal benefits can allow the retiree to avoid tapping into their investment portfolio during bear markets thus giving them time to recover.

This guest blog is brought to you by Jack Marrion from M & O Marketing.  M&O Marketing provides products, marketing, training and support for thousands of independent insurance agents nationwide.  Whether you’re seeking top commissions, more leads, turn-key seminar programs, or you just want to learn how to sell from the best at a hands-on training program, M&O Marketing is your Partner in Success.

Photo courtesy of: http://mathcentral.uregina.ca

Category: Finance, Guest Blog, Investment, Retirement Resource | Tags: , , , , ,
admin | August 13, 2012

The Approaching Financial Danger and How to Avoid it (Part 3)

Idea # 6: THE CRASH IS COMING

I am not going to write a lot here. I want you to read the articles. People I respect are giving solid reasons why they think not only our economy, but the world’s economy, is in jeopardy. Again, please don’t misquote me. This is not Armageddon or the end of the world. But it may feel that way for man Americans, because it will surely cause there to be a lower standard of living. Ask yourself is this what you want for you and your family. If the only way to get ahead of this is to develop a plan or a strategy, why not get started?? We can help!

Idea # 7: DERIVATIVES: WEAPONS OF MASS FINANCIAL DESTRUCTION

Warren Buffet says “calling derivatives garbage is an insult to garbage.” There are now over $1 quadrillion of them on the planet. They will have a definite part to play in the next downturn. The top 25 commercial banks in the United States have derivative exposure of over $230 trillion. That is more than 15 times the total output of the largest economy on the planet. What if a mistake is made? What if?

You must make yourself aware of how ubiquitous derivative have become in the financial world. In this era of extremely low interest rates it is the only way these banks can make money. Remember interest rates are not scheduled to climb for 3 more years. I ask again, what do you think could happen? Did you know the insurance industry led the country out of the great depression? Not the Government!

Idea #8 Transitioning From a Consumption Economy to Savings Economy

The reason this recovery will continue to be so difficult is the transition from consumption to savings. Our population is aging. They save more and spend less. The last 3 bubbles have cost Americans dearly. As we have shown you in this newsletter and in the past, net worth has dropped and the annual incomes have decreased. We do not have the money to buy our way out of this downturn.

In order to maintain growth, we are borrowing exorbitantly. Servicing those debt costs decreases the amount of money that can be used to buy goods and services. Earnings for companies will be more and more difficult to find. Our number 1 goal is to take our clients SAFELY through the next downturn, just like we did in 2008 for them. Did I mention none of them lost a dime?

Idea #9 Why Housing Isn’t Recovering Even Though They Say It Is

Market Watch just wrote an article based on the S&P/Case-Shiller numbers and determined that housing prices are down to 1895 levels after inflation. That sounds just peachy (sarcasm). If you have been reading our newsletters then you already know how we feel about homes. They are not good investments. They are not and never will be good investments. We were only told that so the real estate industry could sell more houses. Have you ever heard “your home is your best investment?” It’s far from true! Even during the heyday of housing prices, the Wall Street Journal did a comparison of a six month CD versus a house from 1997 to 2007. The CD killed the house!

These articles are so people do not tie up a lot of money in houses. At today’s low interest rates and with inflation figured in you are using free money to finance a house. You should do so! Remember, in the 21st century you should be cash rich and house financed. We are not saying that you shouldn’t own a home. If you like the location and the floor plan and all of those things associated with a home, then a home is a perfect choice. But, IT IS NOT A GOOD INVESTMENT! Read these articles you to be cash rich in the future.

Idea # 10: INVESTORS AND TENANTS ARE LOSING

I am adding this article because I want you to know on how many levels our economy is facing real danger. Many of the commercial real estate mortgages were rolled over in 2007. They are usually rolled over for 5 years. Many of these are starting to come due and there are going to be many defaults. Many of these properties will no longer appraise out. Many are finding their cash flow diminished. This is going to be a real problem. Please read the attached article so you have at least a feel for the impact this will have.

What did the boy scouts say? “Be Prepared!” Use these articles to prepare for one of the most interesting and amazing times we have ever seen. Until next time, be safe and God Bless.

Sincerely,

Colin M. Evans CSA

 

Title: Financial Collapse at Hand: When is “Sooner or Later”? http://globalresearch.ca/index.php?context=va&aid=31272

Title: PIMCO’s Gross warns of economic “breaking point” http://www.reuters.com/article/2012/05/31/us-pimco-debt-idUSBRE84U15320120531

Title: Lehman Redux: Is It Time to Panic Again? Gross, Others Think So http://www.advisorone.com/2012/07/05/lehman-redux-is-it-time-to-panic-again-gross-other

Title: Faber: ‘Massive Wealth Destruction’ Coming, Well-to-Do ‘May Lose 50%’ http://www.moneynews.com/StreetTalk/Faber-massive-wealth-destruction/2012/04/04/id/434832

Title: Fraud, Derivatives and The Fed: How Safe is the US Banking System http://www.livetradingnews.com/fraud-derivatives-and-the-fed-how-safe-is-the-us-banking-system-2-78894.htm#.UAiBe2FYvEs

Title: Making Sense of Morgan Stanley’s Derivatives Moves http://dealbook.nytimes.com/2012/06/07/making-sense-of-morgan-stanleys-derivatives-moves/

Title: Fitch: Derivatives Use Heavily Concentrated as New Regulations Loom http://www.marketwatch.com/story/fitch-derivative-use-heavily-concentrated-as-new-regulations-loom-2012-06-07

Title: Commercial Mortgages Show How Bad It Got http://www.nytimes.com/2012/07/06/business/bad-mortgage-loans-burn-investors-and-tenants-high-and-low-finance.html?pagewanted=all

Title: Why U.S. house prices won’t recover. http://www.smartmoney.com/spend/real-estate/why-us-house-prices-wont-recover-1335877657114/

Photo courtesy of playcajon.tumblr.com

 

Category: Finance, Investment, Uncategorized, Weekly Blog | Tags: , , , , , , , ,
admin | August 6, 2012

Tiger Woods, Trans-Fats, and your 401(k)

Recent events have caused people to turn their backs on many of the things they once loved.  Whether it’s from a revealing crash of an incident, a health conscious decision, or a movement of market and times, trends come and go.  With every new report comes a change in the tastes of the people.   But one of these things is not like the other ones.  Unlike many of the fads, the 401(k) may not be something to be written off as a thing of the past, and you should think twice before making it a thing of your past.
In recent years the 401(k) has taken a few knocks.  To some people the 401(k) is the ugly step sister of the pension plan, giving employers an easy way out of having to directly provide for the retirement of their employees.  Also, one of the greatest assets of the 401(k), the company match programs, has become another casualty for many companies in this recessive war we continue to fight.  In addition to that, many employees find themselves with a lack of flexibility in their plans in the slate of investment options chosen by the employers.  These options are often selected based on how the employers can best reduce their costs, resulting in high fees for their employees.  Furthermore, the 401(k) can easily become the old ball and chain, tethering an individual to a particular company in order to keep their plan in motion and avoid the hassle of a transfer.  Some companies even require employees to stay with them for a certain number of years or they risk losing the company’s match contributions.
With all those cons, you might find yourself thinking that a scandal of multiple affairs or an early heart attack don’t seem all that bad.  But it’s important to focus on the advantages of the 401(k) that are unparalleled by most retirement plans.

  • Take advantage of the perks inside your 401(k).  Most of the time your funds are a healthy mix of actively managed funds with high fees and index funds that offer lower costs.  Those high fees could amass to hundreds of thousands of dollars by the time you retire.  The low cost alternatives can offer you a better long term option.
  • Switching jobs can be an opportunity, not a struggle.  The money in your current 401(k) can easily be rolled over into an IRA giving you some independence and control over your funds.  This can save you money in fees with the ability to choose from a wider variety of investments.  Also, some companies allow you to transfer your current 401(k) into their existing program.  There are plenty of options for you if you are looking to escape your current job, but don’t want all your hard investing work going down the tube.
  • Find a window to leave. If you are looking to switch jobs, look into the rules regarding the company’s match program and the term requirements of how long you have to continue with them to avoid losing their contributions.  If its five more years, it might be worth it to just cut and run, but if you are just a few months shy, you might want to stick it out.  Either way, it’s better to know where you’re at on the board than to hope and pray you’ve passed Go and can collect the $200.

Your relationship with your 401(k) is like a marriage.  It has its tough times, but if you focus on the good parts, and put some work into making it a cohesive partnership, you can find yourself living happily ever after, possibly in a retirement home in Orlando.  The bottom line is this: falling into a fad or trend can oftentimes lead to disappointment (we all remember the sad day when floral print satin shirts became a fashion faux pas) but make sure you put some thought into your future before you turn your back on your 401(k).

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Category: Retirement Resource, Weekly Blog | Tags: , , , , , , ,
admin | July 30, 2012

The Approaching Financial Danger and How to Avoid It (Part 2)

Idea #1: THE SOCIAL SECURITY FIGHT
Social Security is the most well-funded of all the U.S. entitlement programs, and yet we will find it difficult if not impossible to fix financially. You will find three articles below. Two argue and explain that Social Security will not go bankrupt in 2033 as previously reported by the Trustees, but will go bankrupt as early as 2023. That is only one decade from now. It will be a truly transformational decade, with so many issues that must be dealt with and reconfigured. Most people despise change. The third article gives a list of at least twelve things being considered to “change” Social Security. These recommendations range from higher taxes to lower benefits to means testing. Change is coming.

Idea #2: WATCH OUT!
That is the title of this cover story article from Barron’s. It not only discusses Social Security, it also brings Medicare and Medicaid into the discussion. It makes it clear that our government is going to have to address the aging demographics of our country or we are going to completely empty the federal
budget just for these programs.

It is so important that you become experts at the math involved in these programs, so you can intelligently ask, “Will there to higher taxes in the future? Will there be lower benefits in the future? Will the government have to create inflation to provide the promised benefits? And, will all of these things create ever-increasing volatility in the markets? Do you want to be hurt by these challenges or do you want to position yourself to take advantage of them?”

Idea #3: WE ARE RAPIDLY APPROACHING THE FISCAL CLIFF: WILL WE BE”THELMA AND LOUISE?”
Here are a number of articles detailing the testimony given by Congressional Budget Office Director Douglas Elmendorf to Congress. It is downright scary. If nothing is done by 2037 our sovereign debt will be 200 percent of our Gross Domestic Product. In order to stop that from happening we would have to
immediately and permanently cut $700 billion for our $3.6 trillion dollar budget. That would be a twenty percent reduction. That will NEVER happen.

What is the interest on $30 trillion dollars at let’s say 5 percent? The answer is $1.5 trillion which is currently more than we spend on Social Security and Medicare. That is 42 percent of our current budget, just for interest. There are actually some scenarios where the Congressional Budget Office assumptions
cause their own model to “break down.” The longer we delay the more drastic the changes to policy will be required and the more painful they will be.

I will bet you anything the Congress will not take the necessary steps needed to repair our economy. There is real danger ahead of us. Taxes, Benefits, Inflation, and Volatility will be the words of the day. “Do you want to be hurt again, or do you want to position yourself to take advantage of these
opportunities.

Idea #4: THERE IS NO MORE CUSHION
The reason we were able to survive 2007 and 2008 was because Americans had built up some net worth. In 2007, the average net worth of an American was $126,400. That has fallen to $77,300. Those 3 years wiped out 18 years of accumulated wealth. At the same time, median family income declined from $49,600 to $45,800. That is about the income level we were at in the mid 90’s. Three quarters of the loss of net worth has come from housing. That is important to know because housing will not be coming back for a long time, except for little pockets here and there around the country. Also, houses
are really non-liquid assets. They are not go-to assets when people need money.

Finally Americans have very little liquid money for emergencies. The next downturn will destroy the rest of that. One article makes it very clear: most Americans have not made back what they lost in 2007 and 2008. They have to learn the new rule of thumb for the 21st century: “Cash is King.”

Idea #5: STATES ARE IN SERIOUS FINANCIAL TROUBLE
At the website www.truthinaccounting.org they just released their second annual study. They disclose that the states have over $900 billion in off the books debt. Check it out!

The Pew Center did a study and determined that the states have $757 billion more in pension requirements than is available. Essentially the states have an unfunded liability of three quarters of a trillion dollars just for pensions. The states also have a shortfall of $627 billion for retiree health care services. For every dollar they will eventually have to pay out, they have only set aside 5 cents.

It gets even worse. A former GAO auditor says that the states are using ridiculously high rates of return and they still have these shortfalls. Additionally, he believes they are now taking undue risks with these pension funds. This is a catastrophe in the making. It means that even people with guaranteed pensions and health care may lose parts of them. Even those who are already collecting benefits may be affected.

To read Ideas#6-10, find out next week.

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Title: Get Ready for the Coming Social Security Fight

http://money.usnews.com/money/blogs/the-best-life/2012/06/08/get-ready-for-the-coming-social-

security-fight

Title: Ben Barnankle Is Bankrupting the Social Security Trust Fund

http://www.businessinsider.com/ben-bernanke-is-bankrupting-the-social-security-trust-fund-2012-7?

utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+%28Business+Insi
der%29

Title: Why Social Security Cannot Pay Full Benefits Until 2033

http://www.fedsmith.com/article/3425/why-social-security-cannot-pay-full.html

Title: CBO: Ballooning Health Care Costs Will Continue As A Key Driver in Nation’s Debt

http://www.kaiserhealthnews.org/Daily-Reports/2012/June/06/cbo-report.aspx

Title: U.S. Risks Fiscal Crisis Without Budget Changes, CBO Says

http://www.bloomberg.com/news/2012-06-05/u-s-debt-may-top-world-war-ii-record-within-15-

years.html

Title: CBO report: US could be the next Greece- in 2037

http://www.csmonitor.com/USA/DC-Decoder/Decoder-Wire/2012/0605/CBO-report-US-could-be-the-

next-Greece-in-2037

Title: Fiscal Cliff: If You Aren’t Worried, Here’s Why You Should Be

http://www.ibtimes.com/articles/350418/20120609/fiscal-cliff-cbo-tax-spending-cut.htm?page=2

Title: CBO Chief Predicts ‘A Good Deal More Pain’ for Economy

http://www.usnews.com/opinion/blogs/robert-schlesinger/2012/06/13/cbo-chief-predicts-a-good-deal-

more-pain-for-economy

Title: The CBO Peers Over the Fiscal Cliff

http://www.nationalreview.com/corner/300938/cbo-peers-over-fiscal-cliff-patrick-brennan

Title: The CBO warning about our dire fiscal future is real-so what must be done?

http://www.foxnews.com/opinion/2012/05/23/cbo-warning-about-our-dire-fiscal-future-is-real-so-

what-must-be-done/
Title: US CBO Chief: Deficit to Rise to $8 Trln if Current Policy Extended

http://www.forexlive.com/blog/2012/05/09/us-cbo-chiefdeficit-to-rise-8trln-if-current-policy-extended/

Title: Q&A: What is the ‘Fiscal Cliff’?

http://blogs.wsj.com/washwire/2012/05/16/qa-what-is-the-fiscal-cliff/

Title: Is Another Government/Financial Meltdown on Horizon?

http://hamptonroads.com/2012/05/another-governmentfinancial-meltdown-horizon

Title: The ‘Fiscal Cliff’ Looms Over Taxes and Spending

http://www.thefiscaltimes.com/Articles/2012/05/14/The-Fiscal-Cliff-Looms-over-Taxes-and-

Spending.aspx#page1

Title: Watch Out!

http://online.barrons.com/article/

SB50001424053111903857104577460623198500652.html#articleTabs_article%3D1

Title: Get Ready for the Coming Social Security Fight

http://money.usnews.com/money/blogs/the-best-life/2012/06/08/get-ready-for-the-coming-social-

security-fight

Title: Ben Barnankle Is Bankrupting the Social Security Trust Fund

http://www.businessinsider.com/ben-bernanke-is-bankrupting-the-social-security-trust-fund-2012-7?

utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+%28Business+Insi
der%29

Title: Why Social Security Cannot Pay Full Benefits Until 2033

http://www.fedsmith.com/article/3425/why-social-security-cannot-pay-full.html

Title: Nation’s net household net worth rises 4.7%

http://www.toledoblade.com/Economy/2012/06/08/Household-net-worth-in-1st-quarter-up-by-4-7-

percent.html

Title: Income and Wealth are Down in U.S.

http://www.nytimes.com/2012/06/09/business/economy/as-recovery-drags-on-income-and-wealth-

lag.html?_r=1

Title: For U.S. Families, Net Worth Falls to 1990s Levels

http://www.nytimes.com/2012/06/12/business/economy/family-net-worth-drops-to-level-of-early-90s-

fed-says.html

Title: Families’ Wealth Dives 39% in 3 Years

http://www.usatoday.com/NEWS/usaedition/2012-06-12-Recessionconsumer-finances_ST_U.htm

Title: Net Worth Implosion: It’s Not Just Housing

http://money.cnn.com/2012/06/19/news/economy/net-worth-housing/index.htm

Title: Wealth Erased

http://www.nytimes.com/2012/06/13/opinion/the-beleaguered-middle-class-wealth-erased.html

Title: Recession Rushed Middle-Class Wealth: Fed Survey

http://articles.marketwatch.com/2012-06-11/finance/32167183_1_median-income-median-wealth-

families

Title: Family Net Worth Fell Almost 40% Between 2007-2010

http://www.nasdaq.com/article/fed-report-family-net-worth-falls-almost-40-between-2007-2010-

20120611-01037

Title: Brutal Recession Destroyed Americans’ Wealth, Net Worth Down 40% in 3 Years

http://www.forbes.com/sites/halahtouryalai/2012/06/11/brutal-recession-destroyed-americans-

wealth-net-worth-down-40-in-3-years/

Title: Study: State pension shortfall ballooned in 2012; 34 failed to maintain safe investment levels.

http://www.boston.com/news/nation/articles/2012/06/18/

study_state_pension_shortfall_ballooned_in_2010/

Title: Former GAO Auditor: Public Pension underfunding Worse than Pew Estimates

http://www.openmarket.org/2012/06/27/former-gao-auditor-public-pension-crisis-is-bigger-than-most-

people-think/

Title: U.S. public pension plans face $1 trillion shortfall

http://www.cbsnews.com/8301-18563_162-57457451/u.s-public-pension-plans-face-$1-trillion-

shortfall/

Title: Snapshots of States With Biggest Pension Gaps

http://www.salon.com/2012/06/19/snapshots_of_10_states_with_biggest_pension_gaps/

Title: Public retiree benefits gap grows to $1.38 trillion

http://www.reuters.com/article/2012/06/18/us-usa-states-pensions-idUSBRE85H1OQ20120618

Title: State/Local Bond Debt Tops $3 Trillion

http://finance.townhall.com/columnists/chrisedwards/2012/06/25/

statelocal_bond_debt_tops_3_trillion

Title: As Costs Soar, Taxpayers Target Pensions of Cops and Firefighters

http://online.wsj.com/article/SB10001424052702304821304577438452821346064.html

Category: Finance, Investment, Uncategorized, Weekly Blog | Tags: , , , , , , , ,
admin | July 23, 2012

The Approaching Financial Danger and How to Avoid It (Part 1)

Financial danger is approaching. It is more widespread, more pronounced, and even more devastating than the financial disaster in 2007 and 2008. We are starting to see the same kinds of events that preceded the last downturn; things like the LIBOR manipulation and more Ponzi schemes. Meanwhile, derivatives have grown from $600 trillion in 2008 to $1.2 quadrillion currently. What could happen if another mistake is made?

 

According to a USA Today/Gallup poll, 2 out of 3 Americans believe a better economy is ahead, in spite of all of this information. Many feel that the Supreme Court’s ruling concerning the Affordable Care Act is beneficial to health care. Most are unaware of the sheer gambling that is taking place with derivatives and the danger it presents to their investments.

 

This update is to clarify the high risks ahead as well as the opportunities that those challenges provide. Here are some important considerations.

 

Most people have not made back what they lost from 2000 to 2002 much less what they lost again from 2007 to 2008. They have lost the time value of that money. Even if you had only averaged a 3 percent return over the last 12 years, you have would have increased your investment by 50 percent; most folks do not realize that. They keep trying to hit home runs when they should be trying for singles. It’s just like in Las Vegas: when you are losing, you keep trying to get that one big win to get you back to even. They didn’t build all of the amazing buildings, sights, and attractions in Las Vegas with the money from winners. On Wall Street, all those profits do not come from our clients who are winning. On Wall Street they get paid whether you win or lose. Statistically, most lose.

 

Before we start this month’s topics, let’s go over why things in the financial world are way more precarious than most people realize.

 

The healthcare system is broken and if it is not REALLY fixed sometime soon, 50 to 80 percent of the country will not be able to afford health care. According to the Milliman Medical Index and reported on CBS Sunday Morning in a segment entitled “What’s the Future of Health Care?” the average cost of health care for a family of four has risen from $8,414 in 2011 to $20,728 in 2012. If you only use an inflation rate of seven percent, which all experts say is ridiculously low for healthcare, you would see health care costs for that same family rise to $41,500 by 2022.

 

Let me give you my numbers, my family health plan premium is just over $800 per month, with a deductible of $3,800 per year. So in the course of a year reaching the deductible (which has to be met before insurance starts covering costs), I will spend $13,400 at a minimum. So be thankful for those that might complain about their benefits at their employment when your health insurance costs you $300 per month, it means if you’re my age, the employer is paying the other $500 per month (in this example).

 

To provide some context, 80 percent of Americans make less than $72,000 per year. And incomes are not rising, they are falling. What do you think will happen? Do we as Americans commit to a lower standard of living? Could something like that even be done?

 

Furthermore, it does not matter who the next president is. In fact we should feel sorry for whoever wins the election. There will be a major downturn in all the markets. Stock markets, bond markets, commodities and real estate markets: everything will be affected and whoever is president will be powerless to stop it.

 

Now, please don’t misunderstand me, the president could use those events to create real reform. Real jobs and real growth could be created from the ashes. Power could be relinquished from governments, corporations, and Wall Street and restored to the people. Much good could be realized if we stop deferring and kicking the can down the road.

 

But right now, Social Security, Medicare, Medicaid, health care are all being funded with funny money. We borrow or print more than 40 percent of all the money we spend as a country and that is rising, not falling. And we are not alone. Europe’s future is tenuous at best. China’s growth is failing rapidly. Japan is unable to overcome its demographic nightmare. The BRIC’s are all facing serious economic challenges. Brazil, Russia, India, and China all are experiencing major slowdowns in their economies and are joining the printing money parade.

 

There are so many issues for government to reconsider and reevaluate that not only will there be a severe downturn, this decade could see several downturns.

 

Finally, the easiest way to predict a slowdown is to understand what is occurring in our own country. We are transitioning from a consumption economy to a saving economy! That is beneficial in the long run, but it will create economic chaos in the decade ahead. How will companies survive if people consume less? What about jobs? Who will create them? The Affordable Care Act has unintended consequences. It requires employers to provide health care for their employees if they employ more than fifty people. Why would an employer increase their operating costs by hiring the 50th employee? Small businesses have always been the greatest creator of new jobs. Why would they do that now? Also, we are an older country and an older world. Older people usually save more and spend less. If this is so, how will we grow our way out of this crisis?

 

So Let’s Go! Find out next week.

 

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Category: Investment, Weekly Blog | Tags: , , , , , , , , , , , , , , ,
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