Who Do You Trust?

A day doesn't go by without a newspaper or TV story about kids mistreating their elderly parent's money. Money that was saved through a life of sacrifice and hard work. Even the wealthy aren't immune from their children's greed. One of the richest women in the world, Brooke Astor, lay on her New York City apartment sofa, sick, in pain, eventually dying while her son absconded with tens of millions. Locally a client of mine pulled her investment account from me because her son 'had helped her pick out a Medicare insurance policy', and was more qualified to handle her investments than I was. We'll see how well that turns out.

Another client of mine, after her husband died, instructed me to make all her investment accounts joint equally with all her children, there were five adult kids. I objected, telling her if she wanted to buy something or go on a trip and four of the five said okay and one said Nyet she couldn't do what she wanted. She didn't listen. Eventually the kids wrested control from mom and split up the money.

It's okay to make your kids beneficiaries on all your savings, insurance and investment accounts. It's a real mess when you start putting all the kids on as joint owners because someone put a bee in someones bonnet about the horrors of probate or the kids don't trust one another.

For most of us we don't need fancy trusts or pricey estate planning. We can do just fine by properly setting up beneficiaries, drawing up a Will and a Durable Power of Attorney for finances and make sure that you establish a health care directive. The whole magilla shouldn't cost you an arm or leg and be fairly reasonable. Have a lawyer draw up the papers instead of going the cheap route of on-line forms, in which case if you do something wrong, well you won't be around to know but it may cost your estate everything you've saved keeping things simple squandered on legal bills to straighten things out. The problem with blank do it yourself kits is they are great for folks who sort of know what they are doing but dangerous for those of us who don't have a clue and we hope we're filling out the right papers.

Don't, please don't, name two or three or more of your kids to act upon your behalf. If you're unable to make financial or other decisions for yourself and you've named a committee of kids to do it for you, kiss this world goodbye. What makes you think they'll get along any better for your benefit than they do for theirs? If you want efficiency name just one kids, a relative or a good friend who has nothing to gain or lose as your personal representative.

In almost every family there is one child that mommy loves more. I have seen it so many times when mom names that 'special' child as the only beneficiary with instructions to share with the rest of the kids. Once mommy is gone Suzie develops amnesia. Remember a named beneficiary trumps anything named in a will. Once Susie has the money she doesn't have to play nice and share with everyone.

If you have stocks, investments other than retirement plans or savings accounts at banks or credit unions you can name beneficiaries on those accounts and best of all its free. Naming beneficiaries means no probate and all the beneficiary needs to do is produce a death certificate to have the accounts re registered.

These are just a few ideas. I am not a lawyer and neither I nor my firm gives tax or legal advice but my friend Larry does. When I need legal and tax advice I see him. I suggest that you consult a competent tax and legal advisor to discuss your personal circumstances and options.

If you have questions on anything contained in this blog call Paul Stanley @ 877 783 7080 or write pstanley@westminsterfinancial.com. Send Paul your email address so you can be notified of financial news and updates.

Musing on Tuesday Looks Sideways From Here

• After a long weekend last stocks rebounded with a triple digit pop on confidence that the Greece problem was being handled. Overall stocks and commodities are off their January 17th highs.
• At the close of business Thursday the Federal Reserve increased the lending rate it charges banks, catching everyone by surprise. Officially the Fed signaled it was dismantling emergency measures created by the financial crisis. Unofficially Fed officials were seen as being 'displeased' banks were engaging in 'carry-trade', borrowing cheap dollars from the government and reinvesting it elsewhere at a higher rate of return. Friday the markets closed slightly up. The number of banks closing year to date is 20.
• Rotation into large caps means there is a lot more life to this market going forward. Weakness in emerging markets, small caps. Vanguard Total Market down 10%, now at November 09 level.
• Businessweek, February 22nd, in their Money Report, using the Fibonacci formula, predicts an 11% drop in the DOW from January high. (see my Nov 25th 09 blog on Fibonacci).
• Who were the winners after the 08-09 market collapse? Vanguard found that the median account balance for 401k participants that made contributions from 09/30/07 through 09/30/09 increased by 7%. Younger workers with smaller accounts saw their accounts increase 62-290%! Yes, people made money by removing emotion from the investment process and by doing what they had been doing before the crash.
• Saudi central banker affirms U.S. dollar as global currency and rejected China's (and others) insistence on replacement.
• Just in case you were not paying attention: It ain't over till it's over. Most of the stimulus is yet to be paid out. Money for infrastructure and states has taken months to organize. Some say it'll mean jobs for over 500,000, while the government predicts it will be 2 million. Of the $179 billion in state paid stimulus last year $117 billion spent on schools, Medicaid, food stamps and unemployment benefits.
• According to some Japan starting to get traction. A long time awaiting.
• While some bad mouth the last decade's investment performance some active fund managers point to solid single digit returns that beat bonds handily.
• Active management or indexing? Argument is that indexing better performing that most active managers. Flip side is that there are always the Ted Williams-like managers who crush the indices.
• IMF sells another 191 tons of gold. Soros increases his gold holdings.
• Four up days in a shortened week. Factories 'gearing' up to begin hiring. Home building increasing, barely, but increasing.
• Good news comes from Morningstar's Robert Johnson who reports that the recovery has legs. You'll have to ask for his report but suffice he believes we're in the 'early' stages of a robust recovery,
• Finally, long-awaited misery-saga Tiger said he was sorry-sob and it was broadcast around the world. Me? I'm waiting for the bankers, hedge funds, brokerage firms and government hacks to own up and say their public Mea Culpa's.

  If you have any questions on this blog please call Paul Stanley @ 877 783 7080 or write to him at pstanley@westminsterfinancial.com Refer this blog to a friend or co-worker.

Caution Wet Paint

It happens every time. Tape a wet paint sign to a wall and as sure as there are yellow daisies you'll have some folks poking, touching and checking if the paint is indeed wet. Signs warning of High Voltage, Ice on Road and Flammable are other bug lights that attract the nitwits. There are rules where a pedestrian should and shouldn't cross the street, yet every day someone somewhere is knocked down by a vehicle because they crossed in the middle of the block or against the light. Railroad crossings are notoriously dangerous yet you read about a locomotive plowing into someone who just didn't believe in all the bells and wooden barriers coming down and tried to get to the other side of the rails.

Brett T. Arends, in the WSJ, lists some financial rules folks should pay attention to. Admitted these are old, tired and not so exciting rules of money management but you can bet there will be people who ignore them simply because they feel rules don't apply to them. These same folk think rules are indeed made to be broken and take pride in that philosophy until the train wreck.

Here's a story where I did everything but set my hair on fire to warn a client from doing something financially suicidal. Ages ago my Michigan client was cold-called by a telemarketer selling Texas oil partnerships. That alone should have been a flare going off in the living room. It gets better, or worse, depending on your viewpoint. After agreeing to have the telemarketer guy send him a bunch of materials my client did the one smart thing and asked me what I thought of the deal. I called a few experts in the oil biz I happened to know and was warned that my client should stay away from the partnership because the investors were also assuming all the risk. I called my client and was telling him this and in the background I heard a strange whirring noise and asked him what it was. 'Why, I;m faxing the forms to sign up for the oil partnership,'my soon to be ex-client said. A few years later, sure enough, I got word that the deal went south and my ex and all the others who signed up found themselves on the hook for an enormous amount of money.

Getting to the Brett T. Arend's rules of wisdom in his February 4th WSJ article.

• Be wary of long-term bonds. When interest rates increase these blow-up quick.
• Make sure you're globally diversified.
• Maximize your 401k, 403b and all available tax shelters.
• Double check and get a cheap fixed mortgage.
• Get rid of your credit card debt(this is mine).

  If you happen to know how, check your portfolio risk, or call your investment planner and have him or her do it for you (call me if you have problems or need more help). No one needs to take extraordinary risks through investing. There are ways of getting good returns without assuming double or more risk of the market. The secret to a long life and a healthy investment portfolio is precisely the same, moderation in all things.

  If you have questions about this blog or anything contained in it call Paul Stanley @877 783 7080 or write to him at pstanley@westminsterfinancial.com. Refer your friends, co-workers to this site. Email your address to be kept up to date with financial news and updates.

Musing on Tuesday Modest Gains Week 2 February

• Tuesday last saw the promise of a rescue for Greece and stocks moved up in a broad based rally. The EU meeting Tuesday February 8Th was to aid embattled Greece, which assured world markets that they were being proactive by increasing retirement age, fuel taxes and began reforms to cut debt. Investors are also concerned about sovereign debt 'spillover' to Italy, Ireland, Spain and Portugal (PIIG), but for the day will take the triple digit return. Wednesday the markets were down after Bernanke speech and reports of higher than expected imports. Thursday saw markets rebound on EU bailout.
• AT&T making news on keeping iPhone users happy. So far, not. Ugly article about problems at the carrier in last week's Businessweek. Verizon hard at work to take away all or some of the iPhone business. Will battle cause one or both to reduce dividend? Can AT&T afford to lose even a part of the iPhone franchise? Stay tuned.
• MetLife is on a roll and whispers that it may be a buyer if AIG unit American Life Insurance Company. Now only if it could speed up its toll free customer service.
• Fannie & Freddie like spoiled nephews of a rich uncle are sucking up the cash with no clean plan in sight. Investors are ignoring them. Government honchos don't seem to know what to do except keep pouring in money, so far $111 billion. With more mortgage defaults on the horizon this summer it seems the government will burn a total of $175 billion between the two quasi-private organizations with no chance of recouping a single penny. At best Fannie & Freddie will be poster children for politicians on both sides of the aisle.
• Dr. Irwin Keller enthusiastically encourages the return of inflation and higher interest rates in Wednesday's Market Watch. Having the Fed increase rates will save the Silent investor, meaning those social security yield hunters. Zero interest helps the banks. Higher rates help the individual saver. The doctor forgets that increasing rates will increase inflation and while social security checks will increase so will food, utilities and fuel, the three amigos not part of the COLA calculation.
• Market up or market down? According to technical analyst Michael Kahn in last week's Barron's on-line the magic numbers according to him are: Nasdaq 2200, Standard & Poor's 500 1100 and Dow 10,300. If all three indicators move above those numbers it's a bull confirmed market. Dip below and the bears will have at it.
• Investors nervous about credit card firms. New rules aimed to help consumers soon to be implemented. Visa, Mastercard, American Express and Discover off highs.
• Citi and Chinese company ink deal to begin trading carbon credits. How does it work? In a previous blog 2009 I reported investors buy credits from energy efficient companies and sell them to companies not so efficient. China determined to reduce energy use by 20% from 2005 levels. There is no legal basis for trading carbon credits now but watch as this market gets legs and moves in a hurry to become a legitimate powerhouse.
• 9 trillion investor dollars sitting on sidelines earning next to nothing.
• Chicago Mercantile Exchange buys Dow Jones indices.
• Markets closed Monday.

  If you have questions about this blog call Paul Stanley @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Send Paul your email address to keep updated on news.

The Spend Everything You've Saved Retirement Plan

Ages ago when I was teaching basic money management at the local Adult Ed I'd mix in a few jokes to keep things light. The problem was that a few adults took offense at my treating a subject as solemn as money so lightly. Whenever I said something I considered mildly amusing those very few just sat and stared like they were attending a hanging. At the break several of them came up to me, munching on my free cookies, and with a condescending air, as if they were smelling something bad, said I'd be much more effective if I didn't try to be cute with my subject. I thought about it and figured if I had to be serious and tedious teaching something as dry a subject as money I'd rather not. It was just a few jokes, dear reader, nothing off color and honestly I never once appeared with my red clown nose or big shoes that flapped.

Today there are many self-proclaimed financial experts writing about money management with a straight face and silly concepts that they make the comedy writers on 30 Rock about as amusing as obit editors. This latest gem, that I am about to share with you, comes from Amy Bell advocating a novel method of investment planning called The Spend Every Penny Retirement Plan. I am not kidding. This sounds a lot like Bobby Layne (football great with the Detroit Lions who played in the middle of the last century), who, when asked about his retirement plan, advocated dropping dead the moment he ran out of money. Ultimately booze and making passes at lasses a quarter his age (or so it is rumored) contributed to his early demise and Bobby ended up being prophetic before the age of sixty.

Now for this latest financial scheme that Amy Bell, writing for the web site Investopedia, suggests that retirees should create a retirement income plan that eventually ends up spending every single nickel they've saved and just live the good life. Don't worry about passing on a legacy, providing for grand kids education or doing good works by establishing a charitable bequest with any spare funds left after a lifetime of work. No, dear reader, Amy Bell makes the case that you earned it, you saved it and you deserve to spend it all before you pass on. Party on, dude.

Naturally this goes contrary to everything we've been taught as morally responsible people. But, just as some economists and financial planners suggest that walking away from a home with a mortgage larger than the market value is a sound civilized decision, so will Ms. Bell Gain her share of converts. Why not? It sounds like fun unless something should go wrong like living past the last banked drachma and being fostered off on society into a Medicaid nursing home or hospice. Then someone else has to pay the caterer.

Amy Bell is quite serious and suggest we do out homework so that doesn't happen and we calculate carefully how long we're going to live. And how does she suggest we do that computation? She writes that we should examine how long our parents lived and then add a decade or more because medicine just keeps getting better and better at keeping people alive. Wow, why didn't anyone else like an insurance company think of that? Does Amy suggest setting anything aside for long-term care, nursing homes or rehabilitation centers? Nope. That's left to chance, good genes and hopefully whatever strikes you, either an illness or accident, is serious enough to keep one down for the permanent count.

Bell is prudent enough to suggest that if someone decides to embark on this fun filled trip that inflation, taxes and not over spending become part of the grand plan.

I can only imagine this Amy Bell person, whomever she is, is probably already hard at work developing other innovative life plans for seniors while locked in her darkened attic wearing an aluminium foil cap to deflect the common sense rays coming from outer space. Bell is not the only one out there with screwball ideas. These new wave financial planner with their odd ideas are everywhere, some may even knock on your door, and today investors have to be more aware and cautious than ever. And the people at Adult Ed thought I was a comic.

If you have questions on this blog or desire additional information on retirement income planning call Paul Stanley @ 877 783 7080 or write to pstanley@westminsterfinancial.com. Send me your e mail address so I may keep you informed as to news and updates.

Tuesday Musings

• Two big up days last week and then the wheels came off Wednesday & Thursday as the debt crisis in Greece escalated. Worldwide traders had to unwind risky asset trades and sell everything to get liquid at any cost. It is remarkable the one asset that everyone looked to for value did not perform as expected and that was gold. The asset everyone ran to was the poor but remarkably stable dollar.


• Small biz leads recoveries but not this time as banks refuse to lend to small companies. Small biz optimism at 15 month lows. Small cap stocks suffer and values found at mature businesses with strong balance sheets.


• Drive-in Sonic sales down 28% over same period last year.


• Emerging markets suffered $1.6 billion in outflows since January 11th high.


• Whispers around the bond trading desk that the U.S. government credit may be downgraded from current Aaa by one or all of the rating agencies making it more expensive to issue debt, By the by, who else has debt problems? Greece, Spain and Portugal along with Great Britain and Japan. With eyes on Europe those in the know say be wary of Japan. Financial troubles abound.


• Ouch! Big banks have set aside mucho dinero for mortgage repurchase warranties from bond insurers along with Fannie and Freddie demanding buy-backs of bad loans. Cost?at least $10 billion.


• Worried about rate increase crushing your bond principal? Maybe not. A policy shift, according to Barrons, by the Federal Reserve that f the rate increases are gradual, allowing time to liquidate holdings this would promote stability in the market. Still risks remain for those with long-term stakes. Expect the Fed to reveal its recipe for hiking rates sometime this week.


• AOL is alive. Like Frankenstein's monster, lead by Google alum Armstrong, and spun off from Time Warner the dial up aka advertising site beat the street estimate by 8 cents. Dubbing itself a transition-brand-advertising site high hopes were being whistled in the halls of AOL.


• Unemployment fell, just barely. In a week loaded with bad news I'll take any small slice of sunshine.


• Ugly February will continue to be ugly.


• Finally, across the rive from Detroit the Canadian real estate market is doing just fine. Average home prices have increased 23% off their January 2009 lows and sales volume is up 70% over that same period.

  If you have questions on anything contained in this blog call Paul Stanley @ 877 783 7080 or write pstanley@westminsterfinancial.com

Dividends, Interest & Appreciation

Knowledge is definitely power and whether we like it or not we're into the Geek Generation, dear reader, where we get information from so many sources that sometimes we overdose on it or get confused once we have it or even lose it and wonder where it went. On the TV show Married with Children actress Christina Applegate played the ditsy daughter who had the retention span of a turkey but one fine day studied to learn a plethora of stuff so she could appear on a television quiz show. The problem was that as she packed her short term memory with new stuff her long-term memory lost a bit of old stuff. It's like a gallon bucket full of water that you pour a teaspoonful more water into and you lose exactly that much.

We all get a bit of short-circuiting when we're mentally juggling several things at once. It's the old finding yourself in a room and wondering what I'm there for syndrome.

Amateur investors get caught up in an avalanche of material from allocation, sectors, technical investing and such that sometimes they get confused on the simple things such as the difference between dividends and interest. Here's a refresher to help understand how each works.

Interest is paid when you deposit money to someone or to something. For example a Certificate of Deposit is where you loan money to the bank in return for the use of your money the bank pays you a fee called interest. The bank guarantees the return of your money through an insurance policy, which we know as FDIC, and asset maturity date or the promise of liquidity. The important thing for you to remember is that when you loan money to a bank or credit union by buying a CD, money market or passbook, you do not own anything.

Bonds are another instrument where you are loaning money to a corporation, tax exempt entity or a government agency in return for interest. Corporations, tax exempt organizations and governments borrow money by issuing bonds. Bonds are nothing more than I-Owe-Yous with a minimum dollar amount, coupon and maturity. Some bonds are insured while most are not. Interest paid to bondholders vary depending on the credit worthiness of the entity issuing the bond. Bond people call that a coupon and you and I can call it interest because it means the same thing.

Dividends are something you get when a company pays shareholders a portion of the company's profits. It's important that you know the dividend comes from profits and it is not all the profits, just some of the profits. The board of directors of the company reviews how much money the company has earned, pays their bills, sets aside some money for a rainy day and with whatever is left declare a percentage of that money to pay to shareholders who own their stock.

Note: whenever a company pays a dividend shareholders will notice the common stock of the company reduces by the same amount. If the dividend is being used to buy additional shares of the stock the share price increase will equal exactly the amount of the dividend paid. And, why is that? Because profits are part of the stock value.

Currently dividends are taxed at a different rate than interest or bond coupons. See your tax advisor for the various ways dividends and interest are taxed along with capital gains.

Appreciation is when the company stock that has paid you a dividend increases in value from the price that you originally paid. Over time the company may increase its dividend and as the dividend increases this means the business must be doing well to support that increased dividend. Logically we can assume, and yes, in most cases, the common stock of the company also appreciates in value.

While not the same thing tax wise but a simple illustration on dividends and appreciation would be if you own a home free and clear and decide to rent it. Over time the value of your home should increase in value (appreciation) while the renter pays to live in your home and the amount of money you net after paying all expenses, taxes, insurance and upkeep on your home plus the deduction of depreciation, you can consider the income much like a dividend. This of course is not meant to assume a home is stock but an illustration on how some mutual funds and dividend paying stocks work.

The way you can keep it straight is if you receive interest you are a loaner and if you receive dividends you are an owner.

Hope this helped.

If you need information on anything in this blog call Paul Stanley @ 877 783 7080 or write to pstanley@westminsterfinancial.com. Send a friend to this address and I'll keep him informed as to news and updates.

Tuesday Musing About January

If January performs well so goes the year, or some such nonsense.

I got a few phone calls from folks asking if they should take a time out and go into cash for the rest of the year because January folded like a cheap wet suitcase and lost ground by almost 5%. The historical numbers on how January fares and so goes the year extend back to 1897. Someone actually had time on their hands and calculated what would happen if an investor started with $10,000 and invested for the full year only if January was up compared to investing no matter what. The January up only barometer grew to $496,209 , if you started in 1897 and by staying the course no matter what grew to $979,220. So like my New York friends say, forgettaboutit. A negative January shouldn't;t scare you from an entire year of investing.

In 2009 FDIC closed 140 banks. In January 2010 15 U.S. banks were shuttered. Six of those failing cost FDIC and ultimately taxpayers almost 2 billion dollars.

If you want to know how big the three largest domestic banks - 24% of all deposits and they operate more than 15000 retail branches.

Tighten your seat belts through February. We're not re-tracing to March 09 but with the dollar strengthening, commodities losing ground, unemployment about to be revised up, inflationary trend flat along with interest rates some feel the markets are slightly overbought.

Evil Whispers on Emerging Markets and BRIC. January not kind to gold, at a three month low, oil below $73.00, Asian lost 5% and Latin America down 4%.

The President, with his State of the Union speech, reaches across the aisle. Why it took him and Congress this long to understand how important jobs are to this recovery is beyond me. Look to infrastructure stocks to benefit.

A new auto manufacturer IPO soon to appear. First since Ford went public in '55'. This time, however, no gas tank.

Berkshire Hathaway became a member of the AS&P 500 with Burlington Northern purchase. Will the gecko ride in a Pullman to the insurance commercials? President selling high speed rail to states and offering buckets of dough. Promises 20,000 jobs per state. (Don't laugh at Warren)

Jobs continue to be problematic. Home Depot plans on closing three stores and laying off 1000 employees.

Las Vegas was fastest growing city now leads the nation with five times the foreclosures.

Final word- stick with what you know. Stay invested, buy quality, add dividends. Recessions like all things ends. Patience in investing as in poker wins.

If you have any questions about this blog call Paul Stanley @ 877 783 7080 or write pstanley@westminsterfinancial.com. Add a friend to our e-mailing notification list by doing the above.