Feel Like Un-Retiring? Here’s How to Prepare

June 8, 2010 — Sam H. Fawaz

Last October, the MetLife Mature Market Institute released a study that said the over-55 workforce will account for almost 93 percent of the net increase in the U.S. civilian labor force between 2006 and 2016.  At the same time, MetLife reported that many American workers plan to stay on the job at least until age 69.

The Pew Research Center’s Social & Demographic Trends Project echoed those findings in May 2009, saying that just over half of all working adults aged 50-65 plan to delay their retirement, with 16 percent saying they never plan to stop working.   The issue, says the Pew study, is not about what these Americans earn, but how much they lost during the investment meltdown and the worst economic downturn in more than 70 years.

Add all these factors together and you have one of the most interesting labor situations for older Americans ever.  That’s why that for every retiree or potential retiree who feels they need to return or stay on the job, it’s particularly important to review investment, insurance and tax issues.  It therefore makes sense to meet to discuss these areas with a financial advisor such as a fee-only Certified Financial Planner™ professional.

Here are some critical points to address:

How are your skills? This is a valid point for current and potential retirees. The best job candidates are those with current skills in technology and procedures specific to an industry, so staying in the workforce may mean retraining.  If there’s a way to get an employer to pay, then you should take advantage of it.  But if you have to pay for your own education, then you really need to weigh whether your earnings will justify it unless you enjoy the area of education or going back to school.

Be realistic about your demographic in the workplace: While age discrimination is illegal, there are some workplace cultures where older workers frankly seem out of place.  You have to ask whether you are going to be happy staying in a field that’s populated by younger workers with different interests or whether you might try another line of work.

Consider how a return to the workplace will affect you personally and socially: If you’re 40, 50 or 60, working right now probably feels like breathing – when have you not worked?  But it may not be the best option after a year or two out of the workplace.

Consider health insurance issues: If a retiree returning to the workforce is already receiving Medicare or is covered by a “Medigap” policy, they may be able to lower their costs or improve their coverage by accepting group coverage as primary underwriter of their medical expenses.  Since people over age 55 are generally the greatest users of the health care system, coverage issues are particularly important to run by a financial planner.

Know your tax picture: Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact full or part-time income will have on your finances.  Most retirees realize that it doesn’t take much income to knock them into a higher bracket.  Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified plans, IRAs, and other tax-favored accumulation vehicles and using annuity income to fill the gap between the beginning of the “post-retirement” period and the age when full Social Security benefits can be drawn without an offset for employment income.  Additional work income may affect the amount of taxable social security income you’re receiving, so be sure to take that into account.

Consider what earnings will do to all your retirement payments: If you are planning to continue working or returning to work, consider not only the tax impact, but also how that might change the way you plan to draw on your retirement savings and investments as well as Social Security.  If you are planning to work, it’s important you consider suspending or delaying receipt of those benefits for as long as you can.

Look for work-related incentives: Particularly for public sector workers, there are opportunities to return to state employment and actually augment existing pensions.  Keep an eye out for these programs and see if they work for you.

Keep saving: If you return to the workplace, see what you can do to take advantage of your new employer’s 401(k) plan or any other tax-advantaged retirement savings benefit, particularly if an employer matches your contribution.  Don’t miss a chance to enhance your retirement savings.

Returning to the workforce after retiring can be immensely rewarding both professionally and personally.  If you’ve un-retired yourself, please feel free to post your comments or additional insights about your experience.

This article was produced by the Financial Planning Association (FPA), the membership organization for the financial planning community, and is provided by Sam H. Fawaz and YDream Financial Services, a local member of FPA and a fee-only member of the National Association of Personal Financial Advisors.
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Market Update for May 20 2010

May 20, 2010 — Sam H. Fawaz

Today marked the 9th day out of the last twelve where the market sold off in a clear message that world governments need to get their acts together and control their fiscal, spending and regulatory policies.  With the Euro currency at historic lows, demonstrations in Greece, an environmental offshore oil catastrophe, German bans on naked short selling, higher than expected weekly job claims, and financial regulatory reform debates going on, we’ve had the perfect storm to extend this market correction.  Stock markets don’t like uncertainty and wishy-washy policy making, so they express their dismay by selling off risky assets.  As of today, the major indices have given back all their 2010 year-to-date gains and then some.  Nonetheless, the long term stock market uptrend remains intact, though as I’ve indicated before (May 6), we’re in for some bumpy times in the market for the summer.

I wish I could say that my crystal ball knew when this short-term pain to the downside would be over.  However, all technical indications is that this move downward is a bit overdone, though admittedly the move to the upside was also overdone in the short-term.  I believe that we’ll see a short or intermediate-term bounce in the next couple of days as value investors and bargain hunters swarm the markets.   We will do the same as the waters calm down.

Indications from Washington are that we may get a vote on the financial reform bill (being debated) tonight and perhaps remove some of the uncertainty in the markets.  I’m not sure what the Obama Administration will tackle next (immigration reform, tax reform, ban on sovereign bailouts, take your pick), but you can bet that it will also rattle the markets when it gets underway.  The European Union appears to be working on a few measures to further restore confidence to the markets and those measures may come to light over the weekend or early next week.  Longer term, we will have to contend with overseas currency and economic weakness, further sovereign debt issues, huge budget deficits, and a stubbornly high unemployment rate.  For the time being though, we have an improving fundamental economic picture, ultra low interest rates, excellent corporate earnings, and plenty of unspent stimulus to keep the market uptrend going for awhile.

Because I felt that it was more likely than not that the majority of the short-term move downward was over today, I decided to lift about 50% of the contra-position hedge that I held on client accounts.  This will allow portfolios to more fully benefit when the uptrend resumes. Leaving 50% of the position “on” allows me to be at least half-right in case there is more downside to come.  This is just prudent hedging.  Should the markets show signs of continuing their downward trend, then it’s just as easy to put the position back on and perhaps add to it.  As of this moment, I see no negative longer term indicators in the markets that tell me that I should be liquidating equity positions and moving to a higher cash position.

Please check out my January-February 2010 Money Magazine Portfolio Makeover-Can I retire Early? http://bit.ly/5aGwIO

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Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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Learning from mistakes: Buying a New Car

April 30, 2010 — Sam H. Fawaz

The red flags in this story point to a few lessons to heed when buying a new car. (©iStockphoto.com) The red flags in this story point to a few lessons to heed when buying a new car. (©iStockphoto.com)

By Sam H. Fawaz

Anyone who has bought a new car is familiar with the hassles of going to the dealer, finding the right car with the right options, negotiating the deal, and pushing back on all the extras the dealer tries to sell. The last thing you would expect to find out, months after you bought the new car, is that the new car you bought was really a used car.

A family member told me a tale of woe that can serve as a warning for others buying a new car from a dealer. This story began when he stopped at a local Cadillac dealer with a specific request for a 2009 Cadillac CTS with certain options. Though the dealer did not have the car he wanted on-site, they told him that they had located one at a dealer in a neighboring state. While negotiating the deal, he told the salesman that he is a savvy buyer and would not pay the dealer’s document preparation charges or marketing surcharge, which were customary for this dealer to charge. The dealer agreed and the deal was signed. The car would be at the dealer’s lot in a day or two.

When the car arrived, the car buyer went to the dealer to inspect and pick up the car. While inspecting the car and test driving it, he noted that it already had 425 miles logged on the odometer. This seemed odd to the buyer, so he asked the salesperson about this. The salesperson told him that these miles were incurred to transport the car to the dealership and that this was pretty normal.

This was the first red flag for the buyer, though the car was almost exactly as he wanted it and was consistent with the deal he signed. Normally, new cars have less than ten miles registered on the odometer, but driving it from an out-of-state dealer seemed to be a reasonable basis for the number of miles (though elevated) logged on this vehicle.

Back at the dealer, and ready to sign the prepared paperwork, the buyer noted that both the document preparation and marketing charges were added to the purchase price. In addition, a dealer added undercoating treatment had been added to the invoice that was not previously disclosed.

This was red flag number two in the transaction. The salesman explained that all buyers pay these amounts and that they were customary charges. In addition, the dealer option was unknown at the time of negotiation and that they could not delete it. The buyer explained that he told the salesman that he would not pay such charges when he negotiated the deal, and if the dealer didn’t remove them and honor the original deal, he would walk out without the car. The salesman pled with the buyer and told him that they brought the car from out-of state for him and that it wouldn’t be fair if he walked away. The buyer stuck to his guns and walked out. Of course the salesman followed him out the door and told him that those charges would be removed. They were indeed removed.

Signing the final paperwork while the car was being prepped for delivery, the buyer was happy to be getting the car he wanted at the price he had negotiated. As is customary with new car purchases (when you don’t transfer a license plate), he received a temporary license plate for the car and was told that he could pick up the permanent one within a month. The dealer would call him when it was ready.

A month or so went by and the dealer hadn’t called him to pick up his permanent license plate, so the buyer called the dealer. He was told that there were some issues with the paperwork and to come by and pick up a 30-day temporary plate. The buyer did so.

Another month went by and still there was no call from the dealer to pick up the permanent plate. Concerned, the buyer called the dealer and was told that they were still having issues with the registration and to pick up another temporary plate. The dealer could not give him any further information. This process repeated for a few more months, and the buyer continued to make payments on the car even though he still had not received a valid title for the vehicle.

This was red flag number three.

Suspicious that something was amiss here, the buyer made a phone call to the Secretary of State to find out why registration had been delayed. He was told that the vehicle identification number (VIN) of his car was not registered to him and that they therefore could not give him any information about the vehicle. Of the few facts he was able to garner from the representative was that the vehicle was still registered in the name of an out-of-state dealer and that the buyer would not, when a new title was issued, receive a new original vehicle title. In other words, the car had been previously registered to another buyer and he would therefore receive a used car title.

Apparently what had happened is that the out-of-state dealer had itself purchased the vehicle for another potential buyer from yet another out-of-state dealer, and, to bring the car across state lines, had to register the vehicle in the dealer’s name (normally, dealers are not required to title vehicles purchased for resale in their name). However, that deal had fallen through, so the dealer was stuck with this car and kept it in its new car inventory system. This explained why so many miles were already registered on this vehicle even though it was transported from an adjacent state less than 200 miles away. In any case, the buyer had essentially purchased a used car under the guise of a new car purchase.

Needless to say, the buyer was not happy about this. Since he wanted to know his rights, he consulted with an attorney who advised him, that even though he had driven the car for several months, he could essentially drive the car to the dealer, demand a refund of all monies paid (including the payments made to the dealer’s financier) and “walk away” from this purchase. Alternatively, he could demand restitution from the dealer for selling him a used car at a new car price.

The buyer called up the dealer and told them that he pretty much knew what was up with this car and let them know that unless they negotiated a settlement with him, he would turn in the keys and they would once again “own” this car. The dealer inquired about the number of miles on it (about 8,000) and asked the buyer to come down to the dealership to talk. In any case, they had finally procured the plate and he could pick that up as well.

The dealer, needless to say, did not want to have to take this car back into inventory and take a large loss on it. The buyer held most of the cards here, so he asked for a settlement of $8,000 cash to keep the car. The dealer of course, low-balled him an offer which the buyer flatly rejected and let the dealer know in no uncertain terms that they would not want the media to hear about his experience with this purchase if they didn’t deal with him in good faith. In the end, the buyer ended up negotiating a $6,000 cash payment plus a $1,800 bumper repair the car had needed. He walked out with a repaired car and a check that day.

This story obviously ended well for such a savvy buyer, but most people would either not know their rights in these circumstances or would not be aggressive enough to push the dealer to settle on their terms. The red flags in this story point to a few lessons to heed when buying a new car:

1) If the dealer adds new charges to an already negotiated deal at signing, walk away and find a more scrupulous dealer.

2) Always inspect, test drive the car and check the odometer before signing the final paperwork. If the mileage on the odometer is more than 10-20 miles, find out why and ask yourself whether this is indeed a new car. Always match up the VIN on the paperwork to the one on the vehicle itself.

3) If it takes more than six weeks to receive a title or license plate, start digging deeper to find out why. When you receive the title, inspect it closely to ensure that you are getting a new car title (original owner) rather than a used car title.

4) If you find out that a new car you have purchased was actually used, consult with an attorney with experience in this area to find out your rights in your circumstances.

I can’t say how many times this kind of story happens to buyers, but I imagine that many more people would not even be aware that this type of thing goes on. Even a savvy buyer as I have described didn’t quite catch on at the time of purchase, so I imagine less experienced buyers would never suspect anything either.

Hopefully, this tale will help you avoid being a victim of this kind of transaction and you’ll be able to assert your rights. While the majority of new car dealers are honest and straightforward, this demonstrates that some clearly can be somewhat shady, even those we think have a pristine reputation.

Sam H. Fawaz CPA, CFP® (a.k.a. TheMoneyGeek) is a fee-only personal financial planner and a registered member of the National Association of Personal Financial Advisors. He has been working in personal finance since 1980 and has been writing about it since 1999. Sam’s website is http://ydfs.com.

Posted in Consumer Alert, General, Smart Buying. Tags: , , , , . 1 Comment »

Market Update-Week Ended March 27, 2010

March 28, 2010 — Sam H. Fawaz

The stock markets have been enjoying several weeks of continued gains after a market correction that ended around mid-February.  Corporate earnings have been stellar, mostly on a net income basis, but many have also enjoyed sales growth as well, albeit from a low (2009) base.

We’ve had stock market indices that have run up to 18 month highs and we came within 100 points of 11,000 on the Dow Jones Industrial Average this week.  Down days in the market have been only very mildly down as investors enjoy more confidence that the economy is slowly improving and that the possibility of a double-dip recession this year is nil.  This has all happened despite bad news from Europe relating to Greece’s possible default on their sovereign debt, Fitch’s downgrade of Portugal’s sovereign debt, passage of “Obama Care”, poor sales of U.S. Treasury bills, record federal deficits, and still dismal (though improving) unemployment figures.  The news that a South Korean Navy ship experienced an explosion yesterday barely made the markets blink.  High inflation is currently nowhere in sight, though it’s a certainty that it will be here before we know it.

With any long string of stock market gains (with only minor down days) comes the inevitable correction in the market. During the latter part of this week, days that were up for the most part suffered downside reversals and profit-taking towards the end of the day.  This could be a sign of another correction coming (perhaps in the range of 5-10%), portfolio managers adjusting their quarter-end books, or just traders preparing for a week or so off for the Easter holiday.  Dwindling stock market volume certainly would indicate that many are planning some time off.  A correction would be healthy for the market, and would give those still sitting on the sidelines or mostly invested in bonds an opportunity to jump back into the stock market at a lower price.  Stories are abound about $3 trillion still on the sidelines in money market accounts earning less than 1-2% interest or invested in low-risk short-term bond funds.  I personally still believe that we will enjoy returns this year in the low to mid-teens while gross domestic product (GDP) growth will be in the 3-4% range, which is historically low.

Next Friday April 2nd, while the stock markets are closed (the bond markets are open), unemployment figures for March 2010 will be reported and they’re expected to show actual job growth for the first time since early to mid-2008.  The boost will be partially attributable to the hiring of census workers, though employers, who are enjoying record productivity levels, have been increasingly hiring temporary workers and will have no choice but to make permanent hires soon, as the existing workforce grows exhausted from one person doing the work previously done by two people.  Even General Motors announced this week that it is recalling 700 workers to its plant in Ontario Canada and plans to hire 60-70 new workers.  The employment trend is definitely in the up direction, but the speed is still at a snail’s pace.  For the unemployed, the pace is understandably far too slow.

For those taking some time off for spring break and the Easter holiday week (post or pre), I hope you enjoy your time off and have good weather wherever you go.   To all who have to work, enjoy a great holiday nonetheless.

I welcome your comments and feedback. If you have any questions, please feel free to get in touch with me and be sure to share this post with your friends and colleagues.  And please be sure to let them know about me if you think that they might benefit from my services.  As a CFP® and NAPFA registered investment advisor, we have a fiduciary responsibility to always put your interest ahead of ours and avoid conflicts of interest.  Most brokers and advisors cannot say this nor do they adhere to this very high standard of care.

A summary of the week’s market results :

Market Update For Week Ending 3/26/2010

Index Close Net Change % Change YTD YTD %
DJIA 10,850.36 +108.38 1.01 +422.31 4.05
NASDAQ 2,395.13 +20.72 0.87 +125.98 5.55
S&P500 1,166.59 +6.69 0.58 +51.49 4.62
Russell 2000 678.97 +5.08 0.75 +53.58 8.57
International 1,572.26 +0.17 0.01 -8.53 -0.54
10-year bond 3.86% +0.17% +0.05%
30-year T-bond 4.75% +0.17% +0.06%

International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Posted in General, investing, markets. Tags: , , . Leave a Comment »

Portfolio Makeover: Can I Retire Early?

January 17, 2010 — Sam H. Fawaz

Money Magazine recently approached me to perform an investment portfolio makeover for a couple in the Metro Detroit area, Kevin and Janice Ford.  The article, written by Money Magazine Senior Writer Donna Rosato, was published in the January-February 2010 double-issue.  The Roasato’s met with me recently and we put together a financial plan and asset allocation.  Here’s an intro to the article and a link to the full one:

(Money Magazine) — Kevin Ford has worked as an engineer in the Detroit auto industry for more than three decades – currently for the car company that best suits his name. His wife, Janice, is also a veteran of the field, a fellow engineer who even ran her own dealership for a few years before leaving the industry in 2005 to do part-time business development consulting.

Kevin hoped to follow her into retirement at age 55, and two years ago that seemed doable. The family had nearly $1 million saved, plus a hefty pension; they had no debt besides a $300,000 mortgage; their son, Darrell, was out of college and daughter, Kimberly, would be done in 2011.

To continue reading, please click here http://bit.ly/5aGwIO.

Posted in General, investing, markets, retirement, Taxes. Tags: , , , , . 3 Comments »

Retirement or College Savings-What Comes First?

December 4, 2009 — Sam H. Fawaz

Even as the economy begins its slow crawl back, college costs are continuing to rise.  That means parents are continuing to fight a tough battle between funding college and funding their own retirement.

In October, the College Board reported that the average published price of tuition and fees for in-state students at four-year U.S. public colleges was $7,020 for the 2009-10 school year, up $429 or 6.5 percent from a year ago. After adjusting for inflation, the average net price paid for tuition and fees by public four-year college students is lower overall in 2009-10 than it was five years ago, but higher than it was last year.  Private four-year colleges saw a smaller increase of $1,096 or 4.4 percent, but for a much higher average annual tuition of $26,273 for the school year.

Also in October, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) also reported in October that American workers who held 401(k) accounts consistently from 2003 through 2008 suffered a 24.3 percent average drop in their account balance during 2008’s bear market.

Despite these huge challenges, it’s particularly important for parents to make retirement their first priority. Kids can always take on loans and search for scholarship and grant funding to tide them over.  Parents can offer help in a better economy, but the momentum lost in saving for retirement is much tougher to replace.

And there are serious financial consequences to breaking into 401(k) and other tax- advantaged retirement savings to pay for college.  Parents tempted to do so should look for other alternatives.

A July 2007 Country Insurance and Financial Services survey found that not only did 25 percent of respondents think it would cost less than $50,000 to send a child to a four-year college, but that nearly half believe that saving for college is more important than their retirement. Most qualified experts  (including me) advise against. On average, public colleges have surpassed $50,000 in total costs when you add in books, room and board.

Before you choose between yourself and your child by raiding your retirement accounts, here’s what you should know:

You’ll escape an early distribution penalty, but…

Any withdrawals from an IRA you might take for your child or grandchild’s education (as well as your own or your spouse’s) can be withdrawn without the usual 10 percent penalty on early distributions before age 59 ½, but you’ll owe regular tax at your incremental tax rate on the withdrawal.  Ultimately, you really need to talk with a tax advisor or Certified Financial Planner™ (CFP®) professional (like me) to determine how your IRA withdrawals affect your tax liability and how they have to be reported on your Form 1040.

You might hurt your kid’s chances for financial aid:

The entire withdrawal from an IRA — whether taxable or not — must be included as income on the following year’s application for the Free Application for Federal Student Aid, or FAFSA. Family income does more to influence financial aid than the size of the family’s assets, and dipping into your IRA can potentially damage your child’s potential financial aid. Check with a trained financial planner who is well versed in financial aid strategy before you make such a move.

Most middle and upper income folks assume that they make too much money to qualify for financial aid.  I urge all students to apply for aid whether they think they qualify or not.  Many students whose parents report a six-figure income may qualify for grants, loans work-study or other financial assistance.

A ‘hardship withdrawal’ or loan from a 401 (k) plan should be a last resort:

Earlier this year, the Transamerica Center for Retirement Studies reported an increase in workers taking loans from their 401(k) and other work-based retirement savings. Eighteen percent of those surveyed reported that they took loans from their retirement plans in 2007 compared to 11 percent in 2006.

Keep in mind that while most retirement plans provide an option for hardship withdrawal for emergency medical or funeral expenses, the IRS restricts use of those funds for home purchases or tuition expenses. In any case, you’ll pay the tax on the withdrawal plus a 10% penalty on most financial hardship withdrawals.

So what do you do?  Besides talking to a tax professional, it makes sense to find time to speak with a CFP® professional to take a look at your overall financial situation so you can possibly find alternatives to raiding your retirement.  A trained planner can help you look over all the spending, saving and investment decisions you’ve made so far and seal up the leaks.  Then you can discover whether you have smarter options to pay your child’s tuition. They include:

Starting a search for scholarships and grants with your kid:

See if there are grants and scholarships not only in your community (think community foundations, high schools, local chambers of commerce), or within your industry or trade associations.  Understand what a prospective student’s college choices might offer in terms of aid from its endowment funds.  Also, some employers offer scholarships for their employees’ kids. Start searching online, at the office and by phone for such aid.

The website http://savingforcollege.com provides lots of information about strategies for saving for college, finding scholarships and applying for financial aid.

Negotiate a college work schedule for your child:

No one says that you have to pay 100 percent of your child’s education costs.  In fact, most students work harder when they have “skin in the game.”  A college sponsored work-study arrangement or just a regular full or part-time job while going to school is a great way for students to learn responsibility and how to manage money.

Whatever portion of college costs you decide to pay for your child, I generally suggest that parents let the children first pay for tuition and books and the parents pay for room, board and spending money.  This way, children will think twice about dropping or performing poorly in a class they know they’ll have to pay for again. Also, parents can incentivize kids by agreeing to pay for a larger percentage of college costs based on grades achieved.

Consider attending a commuter college:

Many local colleges and universities offer the same if not a better educational opportunity for students as going away for college.  If money is tight and the student qualifies for little in the way of grants or scholarships, living at home while attending college can be an excellent way to get an education while saving 40 to 50 percent of the total cost.

Fine-tuning your negotiating skills:

Parents need to become more aggressive about negotiating tuition, room, and board at colleges where either their children or they have been accepted. A financial planner with expertise in college planning can train parents to understand where those savings might be and how to ask for them.

Please feel free to get in touch with me or leave your comments or feedback here if you have any questions.  You can find more information about our services and how we can help at http://ydfs.com.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the Financial Planning Association and the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families. This column was produced by YDream Financial Services and the Financial Planning Association, the membership organization for the financial planning community. All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any planning or investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a sole basis for making investment or planning decisions.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.
Posted in General. 1 Comment »

What’s Going on with Gold?

November 18, 2009 — Sam H. Fawaz

It’s hard to ignore all the buzz about gold lately and how it’s going up to $1,000,000 or more an ounce from here.  If you look back at the history of gold over the years, you’ll quickly see that gold as a long term investment has not even kept up with inflation, much less the risk-free treasury bill rate.  In fact, despite all the talk about gold, I personally hesitate to call it an investment and I’ve never invested $1 in gold (other than the obligatory jewelry for my significant others over the years, but those were not investments).  Gold as a commodity has few industrial uses and, for most of the developed world, provides little beyond intrinsic value.  Central banks around the world hold a percentage of their currency in gold as a hedge, and you may have heard that a few countries have recently increased their holdings in light of the weakening dollar and global economic uncertainty.

The fact remains that gold investments have gone up significantly in recent months, and I’m loathe to shun an asset class that may continue to go up (though I’m not endorsing investing in gold.)  Uncertainty about the value of the dollar, the global regulatory environment, a slow economic recovery, future inflation worries and the growing deficit have all contributed to the worldwide craze over gold.  Near term estimates have put an ounce of gold at $1,300, with some longer term estimates up to $3,000-$5,000 an ounce.  As of today, gold is at its highest levels in years, around $1,148 an ounce.  I hesitate to invest in gold at its current highs, but it looks like it may be going higher.  By the same token, investor appetites for gold can wane quickly, and so the price can drop quickly as well.

If you have more than $250,000 in your already well-diversified retirement account, and you have an appropriate investment choice for gold, you may consider adding  a small portion to your portfolio.  The investment should be in the form of a highly liquid mutual or exchange traded fund (for example, the SPDR Gold Trust or GLD which  buys and houses the physical gold for all of its investors.)  I view an investment in gold as more of a “hedge”, but would look to liquidate it once the prices started dropping.  If you are serious about investing some of your money in gold, then I would wait for a short-term pullback of 3-6% in the price before buying (assuming that a pullback occurs), and would invest no more than 3-5% of your total portfolio value in gold.  The investment in gold should be made in your retirement accounts due to the less favorable ordinary tax treatment gold gets as a collectible, rather than as a capital gain asset.  If you invest in the GLD or other exchange traded funds, be sure to put appropriate stop loss provisions in place to protect your investment.

Another somewhat less risky way to “play” gold is to invest in the stocks or funds of gold mining companies, many of which may already be in your existing mutual and exchange traded funds.  Looking up the funds you own on http://morningstar.com will reveal many of your mutual funds’ holdings.

For the first time in my life, I am personally considering an investment in the GLD fund, but I have not done so yet.  So far, none of my clients’ assets are invested in gold directly either.  I should emphasize that I consider a bet on gold to be a speculation, so it should only represent a small portion of your portfolio, and only if you have a large enough portfolio.  While you could buy gold coins or any number of gold trinkets hawked on late night TV, I recommend that you weigh your decision carefully and consider other investment options if you have a small portfolio.  Well diversified growth mutual funds are always a good bet.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.
Posted in General. 1 Comment »

Last Dog Days of Summer Markets and A Few Money Savings Tips

August 27, 2009 — Sam H. Fawaz

Here’s a letter that we shared today with our clients, friends and prospects.  I’m posting it in hopes that you might find some value in it.

As the summertime fun draws nearer to its final days, I hope that you’ve been able to take some time to get out there and relax with your families.

The markets have been kind over the summer and have given us much to be optimistic about.  But if you’ve heard or listened to the never ending supply of prognosticators out there, you’d think that the market was about to fall out of the sky any day now.  As I’ve mentioned before, while it seems that the market may have gotten ahead of itself a bit, and the fundamental economic factors may not fully support such a bullish run, I don’t see anything that supports a return to anywhere near the March lows.   However, there’s a “but” to be mentioned.

A few technical signs have developed over the last few days that signal that the current market may be a bit overbought, and therefore may be ripe for some profit taking.  I therefore want to caution you that we may see a correction of sorts come September, perhaps in the range of 3-5%, maybe more.  However, I believe that based on all of the improving economic reports, we will eventually resume our uptrend and I predict that we will see double-digit gains come year-end.  The funny thing is though, my crystal ball did not come with a money back guarantee, so please accept my prediction solely for its entertainment value rather than anything to rely or invest on.

The month of September traditionally has not been kind to the stock markets, so please be prepared for some bumpiness.  Should we see an overall deterioration or any hint of a so called double-dip recession, we will take appropriate protective action for our client portfolios.  But right now, all signs point to a very slow economic recovery over the next year.

Some Money Saving Tips:

Now a Doubly Great Deal: You may recall that I touted this cash back deal from Bing last month.  This month, Microsoft is doubling the cash back for a limited time.  If you’re shopping for anything online, try the price comparison tool at http://Pricegrabber.com, then look for that merchant on Microsoft’s new search tool at http://bing.com. Click on “Shopping”.  Enter the item name in the bing search box, and look for merchants offering “Bing cash back” of 2-40%.  Compare the prices on the two sites (PriceGrabber and Bing) and, if the price is less after the rebate on Bing, then buy it there and have the rebates deposited into your PayPal account. Ka-ching!

1st Time Home Buyer’s Credit: If you know of a 1st time home buyer (anyone who hasn’t owned a home in the last three years), they have until November 30 to close on a home and get a refundable 10% tax credit up to $8,000.  They get this money back even if they owe no federal income tax.  But since banks are taking upwards of 60 days to close a deal, getting to an agreement by the end of September is essential so the buyer does not miss out on the tax credit. See http://www.federalhousingtaxcredit.com/2009/index.html for more details on this credit.

Would you like free fries and drink with that?: McDonald’s is offering a free medium fries & soft drink or tea with the purchase of any Angus 1/3 Pound Burger-coupon expires 8/31/09. http://bit.ly/f4M7E

Funny Quote: “The United States has developed a weapon that destroys people but leaves buildings standing. It’s called the stock market.” -Jay Leno

Please enjoy the last few days of summer and your Labor Day weekend.

I welcome your comments and feedback.  If you have any questions, please feel free to get it touch with me and be sure to share this message with your friends and colleagues.  And please be sure to let your friends know about me if you think that they might benefit from my services.  As a CFP® and NAPFA registered investment advisor, we have a fiduciary responsibility to always put your interest ahead of ours and avoid conflicts of interest.  Most brokers and advisors cannot say this nor do they adhere to this very high standard of care.


Please follow me on Twitter at http://twitter.com/TheMoneyGeek

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor and can be found at http://www.ydfs.com.  All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.

Posted in General. 2 Comments »

Evaluating Equity Mutual Fund Recommendations

August 14, 2009 — Sam H. Fawaz

I’m a charter subscriber to the Consumer Reports Money Advisor (CRMA) newsletter and I just received the August 2009 issue.  The CRMA is a very informative newsletter that I always read cover to cover and I highly recommend it to anyone who wants the straight talk on personal finance (I have no affiliation with CRMA).

In their monthly “Money Lab” article entitled “Time to Move Back into Stocks?”, CRMA discusses how it may be time for folks who were severely hurt by the recent market downturn (and perhaps left the markets) to pick themselves up, dust off, and start looking at the stock market again.  Waiting for someone to sound the all-clear sign is not going to happen, and if you wait until everything “feels” good, you’re going to miss out on some of the most important gains of the economic recovery, which usually come in the first 12-18 months.

The article goes on to list five large capitalization funds (large caps) and five small capitalization funds (small caps) as standouts.   Now I normally don’t like to promote or recommend anyone rely on a magazine or a newsletter’s choices for investments, but I trust the CRMA more than other consumer publications.  For most people, the funds that are right for you can only be determined with a careful assessment of your goals, risk tolerance and investment time-frame.  Once these items are known, a proper asset allocation can be constructed.

But I was curious to see how CRMA’s choices stacked up with a methodology that I use to screen funds for my own clients.  So I popped the names of the funds into my research tool, ran an research report on them and I present my observations here.

First, the screen criteria listed for the CRMA choices were:

  1. The funds consistently outperformed their peers (but no period or specific criteria were listed).
  2. Funds had managers that had run them for at least 4 years.
  3. The funds have an expense ratio of no more than 1.4% for small caps (the average expense ratio for small caps is 1.54%) and no more than 1.27% for large caps (1.27% is the average for large caps).

Their choices and a few observations:

Small Caps

Name Ticker Morningstar
Category
Buffalo Small Cap BUFSX Small Growth
Neuberger Berman Genesis Inv NBGNX Small Blend
Queens Road Small Cap Value QRSVX Small Value
Royce Special Equity Invmt RYSEX Small Value
TCW Small Cap Growth I TGSCX Small Growth

From this list, the Royce Special Equity Invmt (RYSEX) and Neuberger Berman Genesis Inv (NBGNX) were on my preferred list of small cap funds.  The rest were not, so I was only batting 0.400.  Naturally, I wanted to know why the rest didn’t make my list.

Queens Road Small Cap Value (QRSVX) did not make my list because it does not have a 10 year history, has only $22M in total assets and a somewhat higher (though still below average) 1.35% expense ratio.  I generally like to see a fund with a 10 year history, at least $50M in total assets and a low expense ratio that matches its best performing peers.

Although TCW Small Cap Growth I (TGSCX) ranked highly for performance compared with its peers for 1, 3 and 5 years, it was ranked in the bottom 15% of funds in its class for the 10 year period ending June 30, 2009.  Though 10 years is a long time, there are funds in this category that make the grade for all periods.  In addition, although TGSCX had a high return rating, it also came with a high risk ranking, and I generally avoid high risk funds, especially when there are funds that generate high returns with lower risk factors.

At first glance, the Buffalo Small Cap fund (BUFSX) revealed that it was outstanding in most respects, so I was puzzled why it wasn’t on my preferred list.  Looking at all the criteria, the fund risk was a bit higher than others but not the highest in the group.  This fund makes big sector bets which can go awry and cause short-term performance problems.  The fund has a 2% redemption fee if you cash out in 180 days or less.  Nonetheless, in the small cap growth space, this is a fine choice.

Large Caps

Name Ticker Morningstar
Category
Yacktman YACKX Large Value
Parnassus Equity Income – Inv PRBLX Large Blend
Fairholme FAIRX Large Blend
Aston/Montag & Caldwell Growth N MCGFX Large Growth
CGM Mutual LOMMX Large Growth

From the above list, only Parnassus Equity Income – Inv (PRBLX) is on my preferred funds list for large cap funds.   The rest were not, so I’m batting 0.200 in this category.

Yacktman (YACKX) is ranked #1 in its category for all period rankings (1, 3, 5 and 10 years), but it does not make my preferred list due to above average risk for the past five years.  It also has a 2% redemption fee if you cash out in 30 days or less.  The managers run a concentrated portfolio (currently 31 stock holdings), which can add to volatility and performance swings over time.  The fund’s propensity to hold cash (20% last year) can hamper the fund when the market is roaring, though it helps in down markets.  In most respects, this is a good fund.

Fairholme (FAIRX) is not on my list because it doesn’t have a 10 year history (currently stands at 9.5 years) and fund’s five year risk is high.  It also has a 2% redemption fee if you cash out in 60 days or less. This fund concentrates its picks in individual sectors and is a highly concentrated portfolio (currently 21 stocks), with top positions representing as much as 15% of assets. Otherwise, it’s ranked #1 in its category for all periods.

Aston/Montag & Caldwell Growth N (MCGFX) is in the top 35% of funds for the 10 yr category ranking.  The managers run a concentrated portfolio (currently 31 stock holdings), which can add to volatility and performance swings over time.  This is the only fund in the recommended group that charges a 0.25% 12b-1 (marketing) fee.  It is a fine fund, but with such a wide universe of large growth funds, you can do better.

CGM Mutual (LOMMX) has excellent 3, 5, and 10 year rankings, but its 12 month category ranking was in the bottom 16% of large cap growth funds.  The 5 year fund risk is above average, so it doesn’t make my list of preferred large cap growth funds.  Year to date, it’s in the bottom 2% of similar funds and is the only fund in the recommended group that has a negative return (-1.27%).  While long term performance is what matters most, I can’t overlook the short term under-performance.  The fund also has concentrated holdings (only 15 stocks and 7 bonds).  Although it’s classified as a large cap growth fund, the prospectus objective is a balanced fund (stocks and some bonds).

Please keep in mind a couple of things when using the forgoing information: 1. This is not an endorsement or recommendation for any particular fund; 2. Fund performance, managers, expenses, operations, etc. change on a daily basis, so a fund that looks great today, may not look so good next week or next month.  With this in mind, if you are managing your own investments, you should be sure to review your choices at least once a year, preferably when you are re-balancing your investments, to ensure that they still meet the objectives you had when you bought them.

Overall, my objective here was not to criticize or praise the choices of the CRMA.  While these funds are good choices in general, knowing more about them can help you decide whether they are appropriate for your portfolio.

Posted in General, investing. 3 Comments »

Five Tips to Avoid Potential Investment Fraud

April 13, 2009 — Sam H. Fawaz

I recently wrote about avoiding investment fraud (How to Avoid Being Madoff’ed) but the subject keeps coming up.  In the most recent news from Wall Street, securities fraud has affected individual investors, pensions and charitable organizations.  At the risk of being a bit repetitive, here are five key safety tips that may help you prevent this from happening to you:

1. Know your advisor.

Most advisors (like me) are registered with government organizations. You can research registrations and review any past complaints with the Securities and Exchange Commission (www.sec.gov), or with the respective state regulatory agency.  If a firm is a Broker-Dealer, you can research it with the Financial Industry Regulatory Authority (www.finra.org).  You should also be aware of what you have authorized your advisor to do.  For example, if you have granted your advisor discretion over your investments, then you have given her permission to buy and sell investments to meet your stated objectives without your approval for each individual trade.  The authority you have granted your advisor should be stated in your client services agreement (you do have one, right?)

2. Know your investments.

Consider stocks, bonds, exchange traded funds (ETFs), and mutual funds that are publicly traded and listed on major exchanges like the New York Stock Exchange.   They are valued independently at least daily, if not minute by minute, when the exchange is open.  You can check their reported returns against your own portfolio.  If you can’t look up the prices and performance of what you own in the newspaper or on the Internet-that’s a red flag, so ask more questions.  If you choose to invest in complex securities like private placements, then you have much more additional homework to do.

3. Use an independent custodian.

By utilizing an independent custodian, there is objective, unbiased pricing of underlying securities.  Investment performance can look better if the prices reported to clients are manipulated, showing winning performance year after year despite the ups and downs of the market.  For example, our custodian, TD Ameritrade, receives security prices through well-known third-party pricing vendors or directly from issuers.  In many cases, prices are provided on a real-time basis for most securities.  We have no input on asset pricing or valuation.  Clients get statements directly from TD Ameritrade.  In addition, your advisor’s independent custodian should have a business continuity plan and a privacy policy to provide access to your investments in the event of a disaster and to protect your personal information.

4. Check on protection.

Your advisor’s custodian MUST be a member of the Securities Investor Protection Corporation (SIPC); if not, find one that is.  If it is, the securities in your account are protected up to $500,000, of which $100,000 may be applied to cash.  For additional information, please visit www.sipc.org and see the Account Protection Sheet.  Our custodian, TD Ameritrade, also provides additional coverage through London insurers of up to $149.5 million per customer of which $900,000 may be applied to cash (and an aggregate of $250 million for all customers).  Please see the Evidence of Excess SIPC Coverage for additional details.  SIPC protection and Excess SIPC insurance protect against losses from brokerage failure, not from market value decline.

For additional information, please see TD Ameritrade’s FAQ for Investors on Protection against Market Fraud.

5. If it Sounds Too Good…

One final thought: If it sounds too good to be true, it probably is.  Beware of consistent annual returns that are out of line with established benchmarks.  Remember, there is no return without risk, so never believe anyone who says that they can get you a high return with little or no risk.  There’s always a “gotcha” hiding somewhere (e.g., excessive fees, commissions, early termination penalties) when they tell you this, so you should be very suspicious.

If you or someone you know has been affected  by investment fraud, or if you have any questions, please comment below.

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