Monthly Archives: October 2013

End-of-Life Planning Mistakes to Avoid

Financial Planning magazine has an article that’s near and dear to my heart.  It describes just how devastating it can be when people don’t clearly express their final wishes to their family.  You can read the article here, but a few bullet points are worth making.

  •  Check your life insurance, IRA and annuity beneficiaries.  They are the ones who get your assets no matter what the will says.
  • Don’t forget about the little things that the heirs may fight over after you’re gone.
  • Don’t leave a lot of unanswered financial questions for your spouse to figure out.
  • Plan your funeral.
  • Leave a will or trust.
  • Share important financial details, including a list of lawyers, accountants and other advisors, with their executors.

Better yet, get a copy of my book BEFORE I GO and you’ll have a blueprint that will help you plan.  You can buy them in quantity by calling our office for your church, club or your family.

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China’s Illusory Growth Numbers

As i read today’s story in the Wall Street Journal I was reminded of an old joke.  It seems that machine politics in one city had gotten so corrupt that when thieves broke into the mayor’s safe all they found were the results of next year’s elections.

We know that China has all the economic trappings of a capitalist society and the government of a communist dictatorship.  Totalitarian governments that set production goals have ways of providing statistics that show those goals have been met.  The question people are asking is whether those statistics are believable.

Beijing appears to be on track, yet again, to hit its official growth target. According to China’s National Bureau of Statistics, gross domestic product rose 7.8% in the third quarter of 2013, well on its way toward hitting the official target of 7.5% GDP growth for the year.

But can these numbers be trusted? Beijing has a long tradition of setting and then claiming to exceed high growth targets, which makes growth appear both rapid and stable. For years, China reported much less volatile economic growth than other developing nations, but lately volatility has all but disappeared. Since the start of 2012, China has reported a GDP growth rate within a few decimal points of the official target—every quarter.

Another reason to question these numbers is that China’s second most powerful official has. In a 2007 cable revealed by WikiLeaks in late 2010, Chinese Premier                                       Li Keqiang was quoted acknowledging that official GDP numbers are “man-made.” Mr. Li, who was head of the Communist Party in northeastern Liaoning province at the time, told then-U.S. Ambassador to China Clark Randt that he looked to more reliable numbers—on bank loans, rail cargo and electricity consumption—to get a fix on the actual growth rate.

Some economists now call these economic indicators the “LKQ Index.” That index shows that China’s economic growth was a lot weaker than officially claimed in the first half of 2013 and picked up in the third quarter only on a new round of stimulus to meet the annual GDP target of 7.5%.

Questions about China’s economy are not just of academic importance.  China, with its huge population and it’s rapidly growing economy has a tremendous impact on the rest of the world.  They are not just the producer of low-cost consumer goods but also the consumer of huge amounts of raw materials.   China is the U.S. second largest trading partner.   They are the world’s largest importer of oil and coal in the world.  They not only export but also import hundreds of billions of dollars of electronic equipment.  If the Chinese are not growing as rapidly as their statistics indicate, they may be creating a “bubble” economy which can explode like the housing bubble did in 2008 with a very dramatic economic impact felt throughout the world and with the potential for social instability inside China itself.

Keep a very close eye on China.

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Finding an identity after retirement

OK, you’re retired.  Now what?

For many people, their job defines them.  People ask what you do after you’re introduced and most people tell you where they work and what their job is.  But after retirement, how do you define yourself?  Here’s how one executive describes the experience.

About a month after I retired, my husband and I attended a black-tie charity dinner with a couple of old friends. We introduced ourselves to the other couples at our table over glasses of bubbly. As we dived into our grilled-shrimp salads, our new acquaintances kicked off the conversation with the usual question, “So, what do you do?”

After years of being typecast by my profession, I was excited to have a new answer: “I just retired a month ago.”

My dining companions seemed interested at first: “Wow, so what do you do now with all that extra time?”

I rattled off the list: “Gardening, biking, reading, lunch dates….”

My friend Tom jumped in, “That all sounds like stuff you don’t really have to be retired to do.”

“Yeah, but I don’t have to hurry to squeeze it all in anymore. I can just take each day slowly. In fact, I don’t even get out of my pajamas before noon these days!”

Tom shook his head. “You’re still in your pajamas at noon? I give it six months until you’re back at work again.”

By the time we got to the beef tenderloin and Cabernet, I noticed the conversation was going on all around me, without me. It was mostly about work.

Quite a few people who retire find second careers as consultants, or get offers to work part time in the fields where they are experienced.  Others throw themselves into charitable work or follow the hobby that they never had an opportunity to get really good at before.  A good friend of mine took a photography course and now is a commercial photographer.

Thanks to vast improvements in medicine, we are living longer, more active lives than ever.   The opportunity to live a “second life” sounds like great fun.


Buying a Retirement Home

After the children have gone the old home may be too big.  The yard may be too much to take care of.  What should retired people look for under these conditions?  If moving into Senior Housing is not on the immediate agenda, many people may decide to move to a smaller home or move closer to their children.  But there are pitfalls in this process.

A retired couple may not care about the school system serving their neighborhood, but it could be very important when the house goes on the market again and young couples don’t want to buy because the schools have a bad reputation.  Another consideration is the financial strength of the city or town they live in.

In Allentown, Pa., weak property values are starving the city of a primary source of cash. Springfield, Ill., has seen pension costs nearly triple in the past decade. Providence, R.I., raised taxes and fees and cut benefits to offset losses in state aid. Fresno, Calif., has so little available cash that officials worry one unforeseen event could reverse nascent improvements.

Living in a community that’s forced to cut back on police and fire protection may not be an attractive place to live.  People in Detroit have seen property values drop so low that they many can’t sell at any price.

When buying a home, whether it’s your first or your last, keep in mind what the next buyer will consider and buy with an eye toward resale.  You know that your home will go up for sale at some point and it could well be your single biggest investment. As we learned in 2008, real estate can go down as well as up in value.  When buying a home always consider what the next buyer will want.

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Getting Financial Advice

Everybody needs financial advice at some time.  But how can the average person get advice without turning their money over to an investment firm?    Suppose they don’t have enough to interest the typical investment advisor?

  • How do I get out of debt?
  • Where’s my money going?
  • How do I save for college?
  • How do I save for retirement?

The middle market – people who don’t have a lot of money to invest – is notoriously underserved by the financial-advice industry, as firms struggle to find a profitable way of serving the households that arguably need their services most. How about paying for personal-finance help the same way you pay for a health club membership, via a monthly retainer that comes out of your cash flow, not your assets?  It’s an option that is now becoming available from RIAs who are adopting this model for their clients who need advice but can’t be served in the traditional way via commissions or assets management fees.  To find out more about this, contact us.



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The Perils of Financial Fraud

When something is too good to be true, run away.  From today’s WSJ:

If someone tried to interest you in an investment that, supposedly, returned 110% annually or one that was “fully guaranteed,” would you walk away? Or would your curiosity get the best of you? Remarkably, more than four in 10 surveyed adults age 40-plus found the (all-but-impossible) idea of more than doubling one’s money each year “appealing,” and 43% had the same reaction to a “guaranteed” product.

Here are some of the top “scams”



5 Bad Ways to Pick a Mutual Fund

The Sunday Wall Street Journal has an article with the title “Bad Ways to Pick a Mutual Fund.”  We think it’s worth while examining this list and making a few comments.

1. Focusing on past returns

This may well be the biggest problem for people who pick their own mutual funds.  There is a good reason that funds mention that “past performance is no indicator of future results.”  There are all sorts of reasons that past performance may not predict how well a fund will do in the future.  Among them are management changes, style drift, and sector rotation.

2. Not looking under the hood

I am always amazed by the number of people who buy a fund without knowing what they do or how their money is being invested.   Going by an advertisement or an article in a financial magazine is no substitute for research.

3. False diversification

Buying multiple funds that all do the same thing is not diversification, its duplication.

4. Chasing headlines

I recall that stock funds were incredibly hot in 1999 and people losing their shirts when the tech bubble burst the next year.   The retail investor is never going to be ahead of the information curve.

5. Buying on ratings alone

Focusing on stars alone is as bad as buying based on what some magazine has deemed, say, the top five funds. In both cases, past performance plays too big a role.

The focus for serious investors is to look for a well diversified portfolio of funds that focuses on generating superior risk-adjusted returns.  To do that, serious investors get professional guidance.

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The three stages of retirement

One of the big investment firms conducted a survey of investors who had a minimum of $250,000 in investable assets.  They found that many in their 60s or even 70s had a new way of viewing retirement.  It’s no longer just about the numbers.

Shifting perceptions of age were among the survey’s more striking findings. Fewer than half of respondents in their sixties and seventies consider themselves old. Most people define old age as beginning at 80, when they expect to be unable to live alone or drive a vehicle.

This may explain why 9 in 10 respondents expect their retirement to unfold in three stages over 30 years. In the first, they see themselves working less, starting new businesses or being more involved with philanthropy. In the second, they’ll focus on travel and leisure. In the last, they’ll cope with health issues and the loss of independence.

We see this all the time.  People who leave big companies to start their own business, or become consultants.  We know of one who sold his business to join a band and play at public events.  Others who become involved with local foundations and endowments.  Who travel to exotic places that they did not have the time to visit during their working careers.  And finally, when physical infirmities catch up with them, find a retirement community, possibly near their children, to spend their last years in the company of their contemporaries.

It’s knowing how to deal with this “new” retirement that sets the RIA who specializes in this area apart.

If this describes you, get a copy of Before I Go, and if we can help, let us know.

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Rise in Exports Helps End Recession in Spain

The European Union and the United States have the largest  bilateral trade relationship and enjoy the most integrated economic  relationship in the world.  The European commission makes the following claims about the US and Europe:

  • Total US investment in the EU is three times higher than in all of Asia.
  • EU investment in the US is around eight times the amount of EU investment in India and China together.
  • EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sides of  the Atlantic. It is estimated that a third of the trade across the Atlantic  actually consists of intra-company transfers.
  • The  transatlantic relationship also defines the shape of the global economy as a  whole. Either the EU or the US is the largest trade and investment partner for  almost all other countries in the global economy.
  • The EU  and the US economies account together for about half the entire world GDP and  for nearly a third of world trade flows.

So it’s important here in the US what happens to Europe’s economies.

Spain has been mired in recession for over two years.  Spain’s central bank released a statement Wednesday that said:

 … a two-year recession in the euro zone’s fourth-largest economy ended in the third quarter, when Spain posted 0.1% growth from the previous quarter, in line with government projections.

In the first official estimate of economic performance during the quarter, the Bank of Spain said the bounce was driven by a strong contribution from the export sector and a decrease in imports, a continuation of trends seen in previous quarters.
We can hope that some of the other troubled Euro zone economies will also improve.
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The Importance of Titling and Designations In Estate Planning

From the Hook Law Firm.

When developing an estate plan, most people assume that their wills are the final document regarding the disposition of their assets. However, many assets pass outside of probate, and thus are not affected by a will in any way. Over the last twenty years, there has been a dramatic rise in non-probate assets; thus, more and more property is passing to the next generation by means other than a will. Many well-drafted estate plans are completely undermined by the way that an asset is titled; others are affected by the designation of a beneficiary.

We have advised people who wanted to pass assets to their children without probate to use the TOD (transfer on death) designation to do it.  As another example, a widow may want to leave a bequest to a friend or caregiver.  She can name that person as the beneficiary of a TOD account who will receive the assets on the death of the account holder without probate.

Banking rules long have allowed people to title their accounts as payable on death to an individual or individuals. This allows, for example, a husband to get his wife’s account without going through probate. In the 1990s, states started to allow owners of brokerage accounts to do the same, using what is known as a transfer-on-death account. State laws, not federal ones, govern how securities are registered in the names of their owners. Now, Texas and Louisiana are the only states that don’t have transfer-on-death statutes, said Benjamin Orzeske, legislative counsel at the Uniform Law Commission, a nonprofit group that promotes clarity of law among the several states.

Transfer-on-death and payable-on-death accounts let their owners bequeath securities or money without going through probate. For a brokerage account, the beneficiary has to reregister securities in his or her name. That requires an application along with a copy of the death certificate. If no one is named on an account, it passes to heirs under the will.

Keep in mind that a TOD designation over-rides a will, so be sure that your account designations are up to date.

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