Monday

How To Invest With The Debt Ceiling Debate

With the fiscal cliff looking more like a fiscal bump, the big debate is coming.

The DEBT CEILING.

Up until the last few years, the United States ability to borrow was rubber stamped by Congress.  That it failed to do so a few years ago led to the USA's downgrade of debt largely because of the fact that the US govt looked disfunctional.

Well, in March 2013, the USA will need to increase the debt ceiling or it could be deja vu.

I believe any President should have the ability to raise the debt ceiling, he or she shouldn't be held hostage by congress in times of distress, war, etc.

I think the fiscal bump will be reactively worked in february/march with a grand bargain to include the debt ceiling.  Call me an optimist but that's the way I see it.

Until then, the stock market will surely go down and sideways at best.  I think caution is the word of the day and boomers especially should be careful.  Nothing wrong with being in cash during times of uncertainty!

Leverage Is Almost Always A Very Bad Idea

"Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

-- Warren Buffett, 2010 Berkshire Hathaway Annual Report 

The preceding from Warren Buffett is undeniably true and recently the amount loaned by brokerages to clients is at an all time high except three weeks before the financial meltdown in 2008.

Boomers are rarely in a position to make back large losses so while tempting, I would stay away from any kind of leverage especially margin debt.

Thursday

Warren Buffett's Berkshire Hathaway vs S&P500

Warren Buffett is certainly the best known investor of all time and one of the most successful.  He has amassed a fortune managing Berkshire Hathaway, a holding company which owns other companies, some public such as Coke, American Express, Wells Fargo and others and trades A shares and B shares.

Question - is it better as an investor to own Berkshire Hathaway or the S&P500?  Consider that over the last ten years, Berkshire has gained an impressive 80% while the S&P500 has gained just 60% but when you include dividends (and you must and charts don't show this), the S&P500 gained 116%.

The answer depends but I would say the S&P500, as much as I revere Warren Buffett.

A few reasons;

  • Berkshire Hathaway does not pay a dividend and the S&P500 does which means in tougher times such as the last ten years, the S&P500 should do better but in a raging bull market, dividend paying companies tend to lag growth companies
  • Warren Buffett is not getting any younger and while a transition is already in place for when he retires, it just won't be the same without him at the helm
Bottom line for boomers is that safety is paramount with any company that doesn't provide a dividend isn't a great idea.

Five Senior Discounts Worth Being 60


Leave the early bird specials to, well, the birds. These days, older Americans get thousands of discounts on everything from french fries to cruises to gym memberships -- without having to resign themselves to the equivalent of eating dinner at 4:30 on a weeknight.

Deals for Americans age 50 and up have been around for a while, of course. Sometimes, companies offer these deals in the hopes that they will attract a new customer base among the big (and fast-growing) boomer demographic; more recently, it's often been a tactic to boost sales when business is slow, says Jon Lal, the founder of cash-back and coupons website BeFrugal.com. For their part, the over-50 set seems to be increasingly drawn to these deals, given the shaky economy and the anxiety some have about their retirement assets. "Consumers are a lot more price sensitive since the recession -- and this has led to greater usage of discounts," Lal adds.

Another change in the older-customer market: Increasingly, these senior deals are happening online. Brent Shelton, a spokesperson for deal site FatWallet.com, says retail deals for seniors are especially abundant online these days. And some airlines have begun for the first time to allow seniors to claim discounts when they book their flights online. "Prior to this, senior fares were only available when booking by phone," says Lal.

While deals like this have usually been associated with retirees, they also offer a nice value proposition to 50-somethings -- a chance to cut some costs at a time when many people are still playing catch-up with retirement nest eggs. Certified financial planner Karen Lee, founder of Karen Lee and Associates in Atlanta, says she generally recommends that people become a member of AARP ($16 a year). Anyone over 50 can join, and members are eligible for hundreds of discounts on hotels, restaurants, rental cars and other expenses.

Even when discounts aren't publicized, Lee adds, "The best advice I can give to people is just ask. If you don't ask, they don't offer."

Here are five areas where older buyers can watch for deals:

1. Travel

Older people make attractive customers for travel companies: Households in which the head of household is between 55 and 64 years old spend, on average, $1,897 a year on travel -- more than any other age group, according to the Bureau of Labor Statistics.

Graying travelers may not be able to get every trip they want on the cheap, but there are enough discounts on airfare, rail and bus travel, rental cars and hotels for older Americans to keep costs down. Here are a few:
  • Bus and rail: Amtrak offers a 15% discount for travelers 62 and up on the lowest available fare on most trains (some limitations apply). Greyhound gives that same age group 5% off some of their fares.
  • Airlines: American, United Continental, Southwest and US Airways may give discounts to those 65 and up who call and ask before booking the flight, says Lee. But these discounts are not always cheaper than Web specials, says Andrea Woroch, a money-savings expert for consumer app-maker Kinoli Inc.
  • Cruise lines: Some cruise lines,including Royal Caribbean and Celebrity, sometimes offer deals for those 55 and up, says Louis Ramirez, the senior features writer for deal site DealNews.com. For passengers who book online, there's usually a check box for seniors. If you don't see that, recommends Ramirez, call and ask.
  • Rental cars: Most of the major rental car companies offer deals for AARP members, including Alamo, Avis, Budget, Dollar, Enterprise, Hertz and National, says Lee.
  • Hotels: Cambria Suites, Clarion Motels, Comfort Inn and Quality Inn all offer discounts for travelers 60 and up; Marriott, Hyatt Hotels and the InterContinental Hotels Group discount for those 62 and up. Some hotels give the discounts only to those with AARP membership.

2. Chain restaurants

While the Per Ses and Momofukus of the world generally won't cut older diners a break, a number of fast food and chain restaurants will. The fast-casual restaurant chains that offer deals for older Americans (typically starting at age 55 or 60) include Applebee's, Boston Market, Chili's, Einstein's Bagels and IHOP. The fast food chains that offer deals include Arby's, Burger King, Chick-fil-A, Dunkin' Donuts, Hardee's, Jack in the Box, KFC, Subway, TCBY and Wendy's. No need to worry if you aren't an "early bird"; at most chains, the discounts are available all day.

3. The great outdoors

Yellowstone, Yosemite, the Grand Canyon -- if you have yet to visit these or one of the other national parks, now's the time to get in at a budget. Through the National Park Service, Americans 62 and older can get a lifetime pass to more than 2,000 national parks, wildlife refuges, forests and other protected lands. The cost: Just $10.

The pass gives you free admittance to these lands for life and can also include a 50 percent discount on fees for boat launching, parking, camping, swimming and tours. (For those not fortunate enough to be older yet, admission to the parks typically start at $10 or $20 per park for a seven-day pass.)

4. Clothes

Some of the best deals for older Americans are in the apparel arena, says FatWallet's Shelton, with a bunch of the big chains offering 10% or more off all merchandise. In part, this may be a "we want you back" effort, because middle-age and older shoppers have been scrimping on their threads since the recession: Over the past five years, boomers' monthly spending on clothes has declined by 30%, according to the Lifestyle Monitor Survey conducted by the trade and marketing group Cotton Incorporated.

Banana Republic, Bealls, Belk's, Dress Barn, Ross, C.J. Banks and Kohl's all offer discounts for older Americans. Discounts may vary depending on the buyer's age and location.

5. Groceries

Loyalty programs have become a major marketing tool for supermarkets, with discounts and points program aimed at keeping consumers from, well, shopping around. But markets have been gradually incorporating additional discounts for seniors, along with amenities like "supermarket cafes" that experts say are aimed at creating a social vibe that keeps older customers (and others) coming back more often.

Today, a number of supermarkets offer deals for older adults, says Andrew Schrage, the founder of MoneyCrashers.com, a personal-finance website. For example, Harris Teeter offers shoppers 60 and older 5% off on Thursdays; Kroger offers people 59 and older 10% off Kroger Brand items every day; and Food Lion offers 6% off every Monday to those 60 and up. Some of the deals may vary by location and may require an AARP membership.
From Smart Money 9/26/12.

Tuesday

Long Term Care Insurance Is A Bad Deal

Insurance was invented to be a hedge against catastrophe.  Home insurance is a hedge against a fire or flood.  Term life insurance is a hedge against you dying early in life and not able to support those needing your support.  Those are insurance worth buying.

BUT a whole rash of 'insurance products' grew in the 1960's including whole life this, and annuity that.  This is insurance you can do without.

AND long term care insurance is a bad deal as well.  

Like any insurance product, long term care insurance can be useful and yes, there are people who benefit but the rewards are far outweighed by the risks and the costs.

First off, the average policy is $3500 a year, yikes, then, you are not covered before 90 days in a nursing home or care facility.  70% of seniors that are admitted into any kind of facility that is covered are released within 90 days anyway.

Remember that $3500 a year for 20 years at 6% is $147,669 and that buys a lot of care if you need it and if you don't, it's all yours, not the insurance company.

Friday

Dividends Can Be Your Best/Worst Investment - There Is No Free Lunch

It is no surprise that with interest rates at historic lows that traditionally fixed income investors are going elsewhere for yield.

That's good and bad.

The good is that many investors, once shy of the stock market are participating now, the bad is that they are slowly becoming overly dependent on the stock market for yield.

It's great to find a stock that you like with a dividend yielding 4-5% however it doesn't take much of a move to the downside to wipeout your 4-5%.  Of course, those investors, many retired investors, say they won't sell when the next downturn comes but I have my doubts.

I have always liked the rule of thumb, your age (as a percentage) in fixed income and the rest in quality equities.  For example a 55 year old would have 55% in fixed income and 45% in equities.  Your risk tolerance would then dictate the kind of equities you invest in.  

However, with fixed income investments paying almost nothing, its hard.  I get it.  But do not succumb to the wall street 'trade' or 'whim' of the day thinking that fixed income and dividend paying stocks are the same thing - they couldn't be much different.

BTW, do not buy bonds now for fixed income.  Interest rates will surely go up and when they do bond prices will get crushed and bond funds (which use leverage) will get destroyed.

As much as it hurts to do so, fixed income these days is cash, money market and CD's.  There is no free lunch!

Wednesday

Best State To Retire

Lots of factors go into the best state to retire in but for the purposes of this article, lets look at property taxes.  When you retire, hopefully your house is paid for and after that, depending where you live, your property taxes could very well be your biggest annual bill.  Here are state property tax rates.  The lower the better so while Texas is a great place to make your money with no state income tax, it is a lousy state to retire to with the highest property tax in the nation.  A $400,000 house will pay over $10,000 annually in property tax!


State-by-State Property-Tax Rates



StateAverage
Property
Tax Rate
United States1.38
Alaska1.80
Alabama0.65
Arkansas0.88
Arizona1.21
California0.68
Colorado1.08
Connecticut1.72
District of Columbia1.31
Delaware0.68
Florida1.20
Georgia1.52
Hawaii0.40
Iowa2.15
Idaho1.42
Illinois1.79
Indiana2.12
Kansas2.09
Kentucky0.96
Louisiana1.02
Massachusetts1.07
Maryland1.06
Maine1.75
Michigan1.91
Minnesota1.27
Missouri1.42
StateAverage
Property
Tax Rate
Mississippi1.44
Montana1.65
North Carolina1.10
North Dakota1.84
Nebraska2.15
New Hampshire2.21
New Jersey1.78
New Mexico0.72
Nevada0.83
New York1.76
Ohio1.81
Oklahoma1.03
Oregon1.22
Pennsylvania1.70
Rhode Island1.52
South Carolina1.38
South Dakota1.96
Tennessee1.07
Texas2.57
Utah1.31
Virginia1.12
Vermont2.06
Washington1.13
Wisconsin2.09
West Virginia0.95
Wyoming2.18

Investing Overseas Is Dangerous

I am asked on occasion about investing overseas in both established markets and emerging markets.


While it is tempting to invest in markets such as China, India, Brazil, Korea etc, it is also quite risky.


Besides the obvious risk inherent to investing in companies in countries outside the US that have much less stringent reporting requirements, there is also a currency risk.


The news lately has centered around established countries within the Euro zone and that has turned out to be a very dangerous place to invest.

I tell people that when you invest in a broad based US index fund, see VTI, then you are already getting some international and emerging market exposure since the companies within such as Caterpillar, IBM, McDonald's, Exxon & GE are already investing in those countries.
Stay tuned.

Monday

Pay Cash For Everything

Boomers are those born from 1946 to 1964 and as we know, all too well, some are starting to retire already and of course, all will sooner or later.

The biggest problem facing boomers is (drumroll please) - debt!

If you are a boomer with debt, cut it out, now.  Debt affects everyone but will affect baby boomers more as we retire.

While you may not have learned yet to pay for things with cash, its never too late to learn.  Use actual cash and / or a debit card.

Debt crushes your ability to save because by its nature, anything you haven't paid off is costing you money, a lot of it.  Revolving credit cards, auto loans, etc, are just terrible, you are paying 12-20% and your savings is maybe 1-2%.  STOP IT!

You may think you are older now and you deserve to buy this item you have waited for but unless you have the cash, you do not deserve it just yet.

PS.  Did you know that Sears #1 business segment is credit cards?

Tuesday

Social Security Secrets

That FICA guy won't be your buddy
textIn the first season of "Friends," Rachel Green looks at her first paycheck as a waitress and asks, "Who's this FICA guy, and why is he getting all my money?"
That's one hard lesson about Social Security. Another is that when it's time to claim, you can't depend on the Social Security Administration to be your personal adviser.
In an effort to save time and cut costs, Social Security employees generally don't give case-specific advice. So that means you are on your own to make the most important financial decision of a lifetime. You have to read the rules and do the research yourself.
William Meyer, whose website, Social Security Solutions, gives Social Security advice for a fee, says you also can't depend on Social Security to follow instructions you give them electronically. If you have a request that is not the most common choice, you'll need to go to the Social Security office and make the request in person, he says.
Read on to brush up on Social Security benefits that are not commonly known.
Myriad ways to claim the goodies
textThere are many ways a married couple can decide to take their Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. You can't ask Social Security to list them all, so what's the right choice?
Munnell says it's hard to beat waiting until you're 70 to begin benefits because the monthly payment is 76 percent higher than it would be if you had started to take benefits at 62 and 32 percent higher than it would be if you claimed at age 66.
Betting against death
textOn the other hand, some people advocate drawing Social Security benefits at the first opportunity.
Doug Carey, who founded the financial planning software firm WealthTrace, says Social Security doesn't see itself as an odds maker, but it does require you to bet on your longevity. He offers this chart as proof. It graphs the break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years. If this person waits until 70 to claim Social Security and lives until at least age 90, he'll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there's a possibility of losing the bet and getting nothing.
Retired law professor and Social Security expert Merton Bernstein says the longevity bet odds are bad, so claim early. "You never know when the bell will ring. I subscribe to the Woody Allen principal: 'Take the money and run.'"
Source: Doug Carey/WealthTrace
A reward for delaying divorce
textIf you're not happy in your marriage after nine and a half years, hold off before hiring a divorce attorney.
"Stay married for at least 10 years," says San Francisco-based Bank of America personal banker Raphael Gilbert.
Why? That's what it takes to stake a claim to your ex-spouse's Social Security benefits. If you terminate the marriage after nine years and 11 months, you're out of luck.
If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex's earnings or on the basis of your own earnings -- whichever is higher.
Bigger reward if ex has 'departed'
textAnd we have another dirty little secret for you. If you haven't remarried, chances are your ex-spouse is worth more to you dead than alive -- especially if he or she was a high earner. Once an ex-spouse passes away, you'll be treated just like a widow or widower. If you are at least 60, you'll be able to collect your late-spouse's benefit and allow your own benefit to grow unclaimed until you reach age 70, when you can switch if your own is higher, according to Carol Thomas, who worked for the Social Security Administration for 28 years and answers questions about Social Security at RetirementCommunity.com.
Assuming your ex will dwell on Planet Earth to a ripe old age, the longer your ex-spouse delays claiming Social Security, the better it is for you. So, if you get a chance, encourage your ex to work until age 70. Then, when it's all over, you'll get to claim half of his or her maximum Social Security. Or once you and your ex-spouse reach full retirement age -- usually 66 -- you can claim half your ex's benefit and let your own grow untouched until you're 70, says Thomas. Consider it payback.
More flexibility for widows and widowers
textSocial Security does a good job of explaining widow and widower benefits, but Dan Keady, director of financial planning for TIAA-CREF Financial Services, says it doesn't clearly spell out a key difference between widow/widower benefits and spousal benefits. A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or begin with survivors benefits and later switch to benefits based on his or her own record -- even if the surviving spouse is filing before full retirement age. You can't do that with spousal benefits.
In other words, a widow can begin drawing a survivor benefit on her late husband's Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age -- or even age 70. This works for widowers, too.
SSDI Step 1: Hire help
textWhen you apply for disability insurance, Social Security doesn't tell you that your first step ought to be hire a lawyer or other expert adviser. Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn't even make it clear that an applicant can have representation from the very beginning of the application process. As a result, lots of people don't get help until they've been initially denied, and that slows down the process unnecessarily, according to Allsup spokeswoman Mary Jung.
Jung also warns SSDI applicants to be accurate and precise on the application. Small mistakes can make a big difference. Minimizing how much exertion was required to perform the person's job is a common mistake that frequently results in denial of a claim.
35 years is the magic number
textThe Social Security website offers an explanation of how your benefits are calculated, but it's a little hard to follow. You can find a simpler explanation at myretirementpaycheck.org, a website sponsored by the National Endowment for Financial Education.
Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year's wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the government will use the highest 35 years. If you worked for less than 35 years, they'll average in zeros for the years you are lacking. You don't have to be a math genius to figure out the impact of that -- it drags down your average. If you can avoid zeros by working a couple of years longer, you'll increase your Social Security payment.
This article was originally written by Jennie Phipps and can be read here.

Saturday

Free Dinners Aren't Really Free

No salesmen or wholesalers allowed!
As a baby boomer with considerable assets, you probably get invited to 'free' investment lunch's and dinner's on a regular basis.  WATCH OUT!!!


Most people don't know about a very uncomfortable relationship, one that cry's out for conflict of interest.  It is the relationship between your stockbroker / financial advisor and mutual fund wholesalers.  Free dinners aren't really free.

Mutual fund wholesalers make money by promoting the fund family that he/she represents to stockbrokers / financial advisors.  The more dollars that flow into that fund in a certain territory, just like any other salesman, the more money they make (and thats fine if you are selling widgets but not financial products).

Wholesalers will often offer incentives to stockbrokers / financial advisors in the form of higher commissions, sponsored events, etc, to have that stockbroker sell a particular fund to their clients.

Worst of all, wholesalers usually report a bump in sales at the end of every sales period or commission month proving conclusively that stockbrokers / financial advisors are not necessarily looking out for your best interest.  

Many stockbrokers I worked with would hold on to cash to wait and see which wholesaler / fund family was offering them the best incentives that particular commission month and then park client money there.  

It is a very unsavory relationship yet it continues to thrive.

The best way to know that all investments are made in your own best interest is to invest by yourself and for yourself.

Friday

Worst Investment Idea Of All Time - Timeshares

In my twenty plus years as a stockbroker / financial advisor, financial writer, author and speaker, I have worked with thousands of people and their money.  I have seen some otherwise smart people make some silly investments; breeding emus, ostrich eggs, xmas tree sales, penny stocks and more but one investment stands alone as the worst investment idea of all time.

Timeshares are incredibly stupid.

You own very little if not nothing, all you bought when you paid for your timeshare is the right to book a room/condo at a future date.

Sure you will be told that you have exclusive this and exclusive that but in the end, you have been SOLD.

Timeshares (called vacation ownership by salesmen) were invented in the 1960's but grew up in the 1990's when it was cool to talk about your REC property at parties.

If you just sit yourself down with a paper and pen and do the math, you will soon realize that aside from some pipedream of selling for a profit one day, that you can book on your own at a nicer property more cost effectively and you won't be stuck in the same room with the same view year after year after year!

Wednesday

Boomer Exposure To Dividend Stocks Is Dangerous

With fixed income rates at historic lows, it is no surprise that baby boomers (those born between 1946 and 1964) have increased their exposure to equities (stocks and stock mutual funds).

While a small percentage of any portfolio should be investing in stocks (usually via growth mutual funds), the trend over the last few years has been to increase exposure.

A normal asset allocation rule of thumb is your age as a percentage in fixed income (bonds, CD's and money market) and the balance in equities.

Recently some folks are utilizing dividend paying stocks for the fixed income portion of the asset allocation (to increase income).  This is not a good idea and a disaster waiting to happen.  In the end, equities are equities, stocks are stocks and sure, those that pay a nice dividend are usually safer with more price stability but will never and should never be mistaken for fixed income.

If your financial adviser or stockbroker has messed with your allocation, you need to call me.  If you have done this to yourself because you heard somewhere it was a good idea, call me.  I am happy to help.

Reverse Mortgages Are A Bad Idea

Ok, you work hard your whole life to finally pay off your home, no mortgage, whew and you assuming you paid off a $300,000 home, over the last 20-30 years, you ended up paying approximately $500,000.

Reverse mortgages are basically when you sell your house to someone else and you get to live in it.  Using the $300,000 home example.  At today's rates (using the calculator offered NRMLA), a 70 year old couple would get a monthly payment of $986 for life or a lump sum of just $172,564.

Unless they take the monthly option and one of those 70 year old's lives for another 42 years until the ripe age of 112, then this is a rotten deal.

Think it through.  Getting $172k for something you paid $500 is not a wise move.

The only way the math works out is that interest rates rise significantly and the monthly payments make sense assuming they live 20 more years.

Reverse mortgages are a bad idea!

Thursday

Investing For Yourself

I know investing for yourself by yourself seems daunting but it is not nearly as difficult as the investerati would have you believe.

The idea of outsourcing the most important decisions you make seems a little crazy to me but I understand that's not what you have been led to believe.

The brokerage industry are the masters of marketing, how else can they convince consumers to buy the exact same product and pay at least double and sometimes 20x as much?

Don't get me wrong, utilizing a financial guy is fine for ideas or hand holding, etc but NOT performance and certainly you need to know what that hand holding is costing you!  Would you believe me if I said that just a 1% fee will cut your account in half over thirty years!

You pump your own gas right?  But you didn't used to, what changed?  Just your perception, the product has always been the same.

Do yourself a favor and read about fees here.  Read what is #1 for stockbrokers.  Read about retirement killers.  Read how investing is like dieting.