Why You Still Need Malware Protection

January 12, 2015 — Sam H. Fawaz

Many ask me why I decided to adopt the nick-name TheMoneyGeek. The answer is because I’m such a money nerd and techno geek.  Where money and technology intersect, I’m really in my element.  Unfortunately, so are creative hackers.  They will take any opportunity to separate you from both your computer data as well as your money. So how do you protect yourself? And with Microsoft Defender software available on most new Windows computers, do you really need antivirus software on your home computers?

The short answer is “yes”.  The Internet is increasingly awash with creative malware that can severely damage your computer, destroy your files, and embed themselves quietly in your operating system, sending information that can be used by identity thieves, or allowing hackers to turn your computer into a spam machine or “slave”.

Antivirus software companies monitor the Web in real time.  They are constantly identifying new strains of malware and providing updates to their software that will look for the “symptoms” of every known virus, isolate it and allow you to remove it before it has a chance to damage your files, send compromising information or invite your friends and neighbors to purchase online porn.

Top10AntiVirusSoftware.com has just released its 2015 list of the most effective programs for preventing worms, trojan horses, viruses or malware from installing themselves on your computer.   The top-rated industry leader was McAfee Software, which can be purchased for $24.99 a year.  Other top-rated programs include Kaspersky ($29.99), BullGuard ($23.96), BitDefender ($19.95), Norton Antivirus ($59.99), AVG ($31.99) and ESET ($19.99).  (You can buy any of the programs at a discount at http://www.top10antivirussoftware.com).

If you prefer free anti-malware programs, Consumer Reports likes Avast!, Avira and AVG antivirus. For paid security suites, Consumer Reports ranks ESET Smart Security, G Data Internet Security, F-Secure Internet Security, Kapersky Internet Security and Bit Defender the best (in that order).  But before you pay for and download any security suites, check with your internet provider-they may furnish all subscribers with free software.

Understand that like all things in the software world, the best program in 2015 may not be the top-rated the following year.  And most importantly, recognize that you need to constantly respond to the free upgrades for your software, because some of the most creative programmers in the world are constantly plotting against you and your security.  Paid anti-malware and security suites require an annual maintenance fee, though many allow you to install the program on up to five computers in your household.

If you would like to discuss protecting your money and computers, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Source: http://www.top10antivirussoftware.com/

Posted in Fee-only, Financial Planning, General, Technololgy. Tags: , , , . Leave a Comment »

How to Make Good on Your Best Intentions for 2015

January 7, 2015 — Sam H. Fawaz

Among many other things, your U.S. government keeps track of the most popular New Year’s resolutions (you can find them by clicking here), and the list is about what you’d expect. At the top of the list is “lose weight,” followed by, in order of popularity:

  • Volunteer to help others
  • Quit smoking
  • Get a better education
  • Get a better job
  • Save money
  • Get fit
  • Eat healthy food
  • Manage stress
  • Manage debt
  • Take a trip
  • Reduce, reuse and recycle
  • Drink less alcohol

The Journal of Clinical Psychology, using a slightly different methodology, also found that “losing weight” was the number one resolution, followed by “getting organized” and “spend less, save more.”  Also on the list: “staying fit and healthy,” “quit smoking” – and a few that were not on the government list: “getting organized,” “enjoy life to the fullest,” “learn something exciting,” “help others in their dreams,” “fall in love,” and “spend more time with family.”

But here’s the interesting part: the Journal found that just 8% of people are successful in achieving one or more of their resolutions in any given year, and 24% of us never succeed in achieving any of our resolutions year after year after year.

Why the high failure rate?  Using MRI technology, brain scientists Antonio Damasio and Joseph LeDoux studied what they called habitual behavior – that is, neural pathways and memories that become the default basis for our responses whenever we’re faced with a choice or decision.  These defaults, they found, are very difficult to change, and actually can be strengthened by efforts to “not do” things that feel natural or have been longstanding habits.

The lesson: Real change—actually succeeding in our resolutions—requires us to carve out new neural pathways.  We need to rewire our brains.

How?  Ray Williams, author of “Breaking Bad Habits,” offers a few suggestions that could dramatically raise your odds of success when it comes to resolutions.  First, he says, make your resolution specific and realistic.  Instead of resolving to “lose weight,” set a goal to lose 10 pounds in 90 days.  Then create a daily strategy for making that happen, taking small positive steps rather than expecting a big change to come over you all at once.  Many people quit their resolutions because the goals are too big and require steps that are too large—all at once.

Of course, you still have to actually take those individual steps, and it’s easy for them to get lost in the background noise of your daily life.  Williams recommends that if you’re truly serious about sticking to your resolutions, recruit an “accountability buddy” who you will have to report to on a regular basis.  You’ll find a way to get your resolutions on your own personal priority list, and do these things for someone else because you don’t want to admit that you failed to take the steps you promised to do.

It may also help to keep the goals in front of you—on your computer screen or tacked up in a place where you can see them.  This will remind you to ask yourself: what’s the one thing I can do today, right now, towards my goal?

Don’t give up when you slip—and you will.  Simply continue working at your goal.  And finally: Recognize that creating new neural pathways in your brain is hard work—far more work than simply writing down a resolution.  Remember the failure rate, and gird yourself accordingly.

If you would like to discuss your 2015 financial goals or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Sources:

 http://www.statisticbrain.com/new-years-resolution-statistics/

 http://www.psychologytoday.com/blog/wired-success/201012/why-new-years-resolutions-fail

Posted in Financial Planning, General, retirement planning. Tags: , . Leave a Comment »

2014 Investment Report: Dare to Believe?

January 4, 2015 — Sam H. Fawaz

Looking back on 2014, people are going to say it was a great year to be an investor. They won’t remember how uncertain the journey felt right up to the last day of a year that saw the S&P 500 close at a record level on 53 different days. Think back over a good year in the market. Was there ever a time when you felt confidently bullish that the markets were taking off and delivering double-digit returns? I know I didn’t.

The Wilshire 5000–the broadest measure of U.S. stocks and bonds—finished the year up 13.14%, on the basis of a strong 5.88% return in the final three months of the year. The comparable Russell 3000 index will go into the history books gaining 12.56% in 2014.

The Wilshire U.S. Large Cap index gained 14.62% in 2014, with 6.06% of that coming in the final quarter. The Russell 1000 large-cap index gained 13.24%, while the widely-quoted S&P 500 index of large company stocks posted a gain of 4.39% in the final quarter of the year, to finish up 11.39%. The index completed its sixth consecutive year in positive territory, although this was the second-weakest yearly gain since the 2008 market meltdown.

The Wilshire U.S. Mid-Cap index gained a flat 10% in 2014, with a 5.77% return in the final quarter of the year. The Russell Midcap Index gained 13.22% in 2014.

Small company stocks, as measured by the Wilshire U.S. Small-Cap, gave investors a 7.66% return, all of it (and more) coming from a strong 8.57% gain in the final three months of the year. The comparable Russell 2000 Small-Cap Index was up 4.89% for the year. Meanwhile, the technology-heavy Nasdaq Composite Index gained 14.39% for the year.

While the U.S. economy and markets were delivering double-digit returns, the international markets were more subdued. The broad-based EAFE index of companies in developed economies lost 7.35% in dollar terms in 2014, in large part because European stocks declined 9.55%. Emerging markets stocks of less developed countries, as represented by the EAFE EM index, fared better, but still lost 4.63% for the year. Outside the U.S., the countries that saw the largest stock market rises included Argentina (up 57%), China (up 52%), India (up 29.8%) and Japan (up 7.1%).

Looking over the other investment categories, real estate investments, as measured by the Wilshire U.S. REIT index, was up a robust 33.95% for the year, with 17.03% gains in the final quarter alone. Commodities, as measured by the S&P GSCI index, proved to be an enormous drag on investment portfolios, losing 33.06% of their value, largely because of steep recent drops in gold and oil prices.

Part of the reason that U.S. stocks performed so well when investors seemed to be constantly looking over their shoulders is interest rates—specifically, the fact that interest rates remained stubbornly low, aided, in no small part, by a Federal Reserve that seems determined not to let the markets dictate bond yields until the economy is firmly and definitively on its feet. The Bloomberg U.S. Corporate Bond Index now has an effective yield of 3.13%, giving its investors a windfall return of 7.27% for the year due to falling bond rates. 30-year Treasuries are yielding 2.75%, and 10-year Treasuries currently yield 2.17%. At the low end, 3-month T-bills are still yielding a miniscule 0.04%; 6-month bills are only slightly more generous, at 0.12%.

Normally when the U.S. investment markets have posted six consecutive years of gains, five of them in double-digit territory, you would expect to see a kind of euphoria sweep through the ranks of investors. But for most of 2014, investors in aggregate seemed to vacillate between caution and fear, hanging on every economic and jobs report, paying close attention to the Federal Reserve Board’s pronouncements, seemingly trying to find the bad news in the long, steady economic recovery.

One of the most interesting aspects of 2014—and, indeed, the entire U.S. bull market period since 2009—is that so many people think portfolio diversification was a bad thing for their wealth. When global stocks are down compared with the U.S. markets, U.S. investors tend to look at their statements and wonder why they’re lagging the S&P index that they see on the nightly news. This year, commodity-related investments were also down significantly, producing even more drag during what was otherwise a good investment year.

But that’s the point of diversification: when the year began, none of us knew whether the U.S., Europe, both or neither would finish the year in positive territory. Holding some of each is a prudent strategy, yet the eye inevitably turns to the declining investment which, in hindsight, pulled the overall returns down a bit. At the end of next year, we may be looking at U.S. stocks with the same gimlet eye and feeling grateful that we were invested in global stocks as a way to contain the damage; there’s no way to know in advance. Indeed, we increased our allocations to overseas markets in 2014 as a matter of prudent re-balancing.  For 2014, that proved to be a tad early, providing a bit of a headwind.

Is a decline in U.S. stocks likely? One can never predict these things in advance, but the usual recipe for a terrible market year is a period right beforehand when investors finally throw caution to the winds, and those who never joined the bull market run decide it’s time to crash the party. The markets have a habit of punishing overconfidence and latecomers, but we don’t seem to be seeing that quite yet.

What we ARE seeing is kind of boring: a long, slow economic recovery in the U.S., a slow housing recovery, healthy but not spectacular job creation in the U.S., stagnation and fears of another Greek default in Europe, stocks trading at values slightly higher than historical norms and a Fed policy that seems to be waiting for certainty or a sign from above that the recovery will survive a return to normal interest rates.

On the plus side, we also saw a 46% decline in crude oil prices, saving U.S. drivers approximately $14 billion this year. On the minus side, investments in the energy sector during 2014 proved be a downer to portfolios. Oil, like most commodities, tends to be cyclical, and should turn back upward should the rest of the world find its footing and show healthier signs of growth. Should crude continue to slide, we may see collateral damage in the form of lost jobs, shuttered drilling projects and loan defaults by independent, not so well capitalized producers. This would be your classic case of “too much of a good thing.”

The Fed has signaled that it plans to take its foot off of interest rates sometime in the middle of 2015. The questions that nobody can answer are important ones: Will the recovery gain steam and make stocks more valuable in the year ahead? Will Europe stabilize and ultimately recover, raising the value of European stocks? Will oil prices stabilize and remain low, giving a continuing boost to the economy? Or will, contrary to long history, the markets flop without any kind of a euphoric top?

We can’t answer any of these questions, of course. What we do know is that since 1958, the U.S. markets, as measured by the S&P 500 index, have been up 53% of all trading days, 58% of all months, 63% of all quarters and 72% of the years. Over 10-year rolling time periods, the markets have been up 88% of the time. These figures do not include the value of the dividends that investors were paid for hanging onto their stock investments during each of the time periods.

Yet since 1875, the S&P 500 has never risen for seven calendar years in a row. Could 2015 break that streak? Stay tuned.

Sources:

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

http://money.cnn.com/2014/09/30/investing/stocks-market-september-slump/index.html

Nasdaq index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP

International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

http://blogs.marketwatch.com/thetell/2014/06/30/one-chart-explains-the-unexpected-first-half-treasury-rally/

Aggregate corporate bond rates: https://indices.barcap.com/show?url=Benchmark_Indices/Aggregate/Bond_Indices

Aggregate corporate bond rates: http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/

http://www.reuters.com/article/2014/12/31/us-usa-markets-2015-analysis-idUSKBN0K908820141231

http://moneyover55.about.com/od/howtoinvest/a/bearmarkets.htm?utm_term=historical%20performance%20of%20s&p%20500&utm_content=p1-main-7-title&utm_medium=sem&utm_source=msn&utm_campaign=adid-ac372107-3fb5-4c61-a1f3-6ab4e1340551-0-ab_msb_ocode-28813&ad=semD&an=msn_s&am=broad&q=historical%20performance%20of%20s&p%20500&dqi=S%2526P%2520500%2520yearly%2520performance&o=28813&l=sem&qsrc=999&askid=ac372107-3fb5-4c61-a1f3-6ab4e1340551-0-ab_msb

Posted in Financial Planning, General, investing, markets, retirement, retirement planning. Tags: , , , , . Leave a Comment »

As Inflation Fears Fade, Deflation Moves Front and Center

December 31, 2014 — Sam H. Fawaz

As the Federal Reserve winds down its massive bond-buying program, the widely predicted after effects — rising interest rates and inflation — have thus far failed to materialize. The yield on the bond market’s bellwether 10-year Treasury note, which started 2014 at 3.03%, had fallen to 2.33% as of October 29.1 Similarly, inflation, as measured by the U.S. Bureau of Labor Statistics key benchmark, the Consumer Price Index, has risen just 1.7% in the past year and has averaged 1.6% since the Fed first initiated its bond-buying program four years ago.2

Currently, concerns over inflation have been replaced by an opposite economic condition: deflation, defined as two quarters of falling prices within a 12-month period.3

Deflation, a Good News/Bad News Story

The paradox of deflation is that it can create good as well as bad conditions. When prices on essential goods and services drop, consumers are left with more disposable income to spend on nonessential items. Case in point: Plunging oil prices have spelled relief at the pumps, as the average national price for gas has now dropped below $3.00 a gallon for the first time since 2010.4

But when prices tend to fall across the board, the effect can turn negative for the economy, companies, and governments alike. Consumers put off making major purchases in the hope that prices will fall even further. That purchasing stalemate can be disastrous for a consumer-driven economy like the United States’, which garners about 70% of its GDP from consumer spending.

When spending stalls, companies’ revenues suffer and pressure mounts to cut costs by laying off workers, freezing or reducing wages, or raising the price of the goods they produce — all of which can further stymie consumer spending and deepen the deflationary cycle.

Debt is the other major problem associated with deflation. On the consumer side, when wages are stagnant or declining, consumer spending power declines, and it becomes more difficult to pay off debts — even fixed-rate debt such as home mortgages — because the value of that debt relative to income increases.

The same scenario plays out for corporations and governments, causing cash-flow shortages, tax revenue shortfalls, liquidity problems, and even bankruptcy.5 Deflation fears are particularly pronounced in Europe, where sluggish economic growth has much of the continent teetering on the brink of recession. To a lesser extent Japan and China are facing similar woes.

On the Right Side of the Problem

The good news/bad news nature of deflation has everything to do with what is driving the drop in prices of goods and services. For instance, if it is a lack of demand — as many economists say is currently the case in the Eurozone — deflation could be damaging. If, however, it is due to a boost in supply — such as the oil and gas boom in the United States — it can prove beneficial to economic growth.6

Either way, analysts say that U.S. investors should benefit from current conditions for the time being. The S&P 500 Index has gained 6.3% thus far this year (as of October 26), while the Stoxx Europe 600 Index has fallen 0.3%. Meanwhile, virtually all major currencies are devaluing against the dollar in an attempt to export deflation to the United States.6

If you would like to discuss your current portfolio asset allocation or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

I wish you great health and prosperity in 2015!

 

Sources:

1USA Today, “First Take: Beginning of the end of easy money,” October 29, 2014.

2U.S. Bureau of Labor Statistics, Consumer Price Index, September 2014.

3The Economist, “The dangers of deflation: The pendulum swings to the pit,” October 25, 2014.

4AAA’s Fuel Gauge Report, November 3, 2014.

5Yahoo Finance, “Why deflation is so scary,” November 3, 2014.

6Bloomberg, “U.S. Gains From Good Deflation as Europe Faces the Bad Kind,” October 26, 2014.

Posted in Fee-only, Financial Planning, General, investing, markets, retirement planning. Tags: , , , . Leave a Comment »

Sam Fawaz Guest Speaker-Tune into SiriusXM CH 111 on Tue Dec 30th at 5.30pm EST!

December 28, 2014 — Sam H. Fawaz

On Tuesday, December 30th, I will be the guest Financial Planner on SiriusXM’s Business Radio show “Your Money“, hosted by Kent Smetters. The show airs on Wharton Business Radio, Channel 111 and will begin at 5 PM EST / 4 PM CST. Make sure to tune in!

I am honored to have been invited to be the guest Financial Planner on Your Money and it would be even more of an honor if you were to tune in and provide me with your questions and/or feedback.

The show runs from 5:00 to 7:00PM EST (4-6 PM CST) and I will be on between 5:30 and 6:15PM EST (4:30 and 5:15PM CST).  We will be talking about and answering questions on New Year’s resolutions and financial plans for 2015.

I hope you can join me then!

Posted in Financial Planning, General, retirement planning. Tags: , , , , . Leave a Comment »

Is Your Portfolio “In Style” or Making a Bad Fashion Statement?

December 24, 2014 — Sam H. Fawaz

It is fairly common knowledge that a retirement portfolio’s carefully constructed asset allocation can become unbalanced in two cases: When you alter your investment strategy and when market performance causes the value of some funds in your portfolio to rise or fall more dramatically than others. But did you know there is also a third scenario? Your portfolio can become unbalanced due to unexpected changes in the funds’ holdings.

Getting the Drift

The phenomenon known as “style drift” generally occurs when a fund’s manager or management team strays beyond the parameters of the fund’s stated objective in pursuit of better returns. For example, this may occur when a growth fund begins investing significantly in value stocks or when a large-company fund begins investing in the stocks of small and midsized companies. As a result, the fund’s name may not accurately reflect its strategy.

If style drift occurs within the funds held in your portfolio, it could alter your overall risk and return potential, which may influence your ability to effectively pursue your financial goals.

Feeling the Effects

While some fund managers embrace a strategy that provides significant flexibility to help boost returns, and indeed such flexibility often proves quite successful, investors need to remember that too much flexibility can also present a threat to their own portfolio’s level of diversification. Investors need to consider their ability to tolerate unexpected changes in pursuit of higher returns.

For example, let us assume an investor allocates her equity investments equally between growth funds and value funds with the hope of managing risk and increasing exposure to different types of opportunities. If the manager of the growth fund begins to invest heavily in value stocks, the investor could end up owning two funds with very similar characteristics and a much greater level of risk than she intended.

Truth in Labeling?

Although most investment companies, including those represented in your retirement plan, adhere to stringent fund management standards, you may not want to simply judge a book by its cover, so to speak. An occasional portfolio review can help ensure that you remain comfortable with each fund’s management strategy.

For a comprehensive look at each fund and to evaluate its potential role in your portfolio, take the time to study its prospectus and annual report to determine how much flexibility the fund manager has in security selection. Also, look carefully at the fund’s holdings to see if they are in line with the stated objective. If you discover something that appears amiss, it may be appropriate to rebalance your portfolio accordingly.

If you would like to discuss your current portfolio asset allocation or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Have a Merry Christmas!

Posted in Fee-only, Financial Planning, General, investing, markets, retirement planning. Tags: , , , , , , . 1 Comment »

How Do the Markets Really Work?

December 21, 2014 — Sam H. Fawaz

We all do it.  But what do we really know about investing?  A recent post about investing wisdom features a lot of interesting (and often overlooked) facts and figures, plus some insights from Warren Buffett, Jeremy Siegel, William Bernstein, Nobel laureate Daniel Kahneman and a few economists you may have heard of.

Regarding market predictions, the post had this to say: The phrase “double-dip recession” was mentioned 10.8 million times in 2010 and 2011, according to Google. It never came. There were virtually no mentions of “financial collapse” in 2006 and 2007. It did come. A similar story can be told virtually every year.

According to Bloomberg, the 50 stocks in the S&P 500 that Wall Street rated the lowest at the end of 2011 outperformed the overall index by 7 percentage points over the following year.

Many of the items offered insight into how our investment markets actually work.  For instance:

  • Since 1871, the market has spent 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.
  • Apple increased more than 6,000% from 2002 to 2012, but declined on 48% of all trading days during that time period. (Investing is never a straight path up.)
  • Polls show Americans for the last 25 years have said the economy is in a state of decline. Pessimism in the face of advancement is the norm.
  • A broad index of U.S. stocks increased 2,000-fold between 1928 and 2013, but lost at least 20% of its value 20 times during that period. People would be less scared of volatility if they knew how common it was.
  • There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and identifying a winning investment are two different things.
  • According to economist Tim Duy, “As long as people have babies, as long as capital depreciates, technology evolves, and tastes and preferences change, there is a powerful underlying impetus for growth that is almost certain to reveal itself in any reasonably well-managed economy.”

The post had a few zingers about some of the best-paid executives in the financial and investment community:

  • Twenty-five hedge fund managers took home $21.2 billion in 2013 for delivering an average performance of 9.1%, versus the 32.4% you could have made in an index fund. Hedge funds are a great business to work in — not so much to invest in.
  • In 1989, the CEOs of the seven largest U.S. banks earned an average of 100 times what a typical household made. By 2007, that had risen to more than 500 times. By 2008, several of those banks no longer existed.

And finally, if you want to understand the difference between daily fluctuation and the underlying growth of value in the markets, consider this:

Investor Ralph Wagoner once explained how markets work, recalled by Bill Bernstein: “He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”

If you would like to discuss your current portfolio or any financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Source:

http://www.businessinsider.com/things-everyone-should-know-about-investing-and-the-economy-2014-12

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

Should We Fear—Or Cheer—Plunging Oil Prices?

December 18, 2014 — Sam H. Fawaz

Chances are, you’re celebrating today’s lower gas prices.  AAA reports that the national average price of gas is $2.48 today, the lowest since December 2009.  The result: an estimated $70 billion in direct savings for U.S. consumers over the next 12 months.  At previous prices, the average American was spending about $2,600 a year on gasoline, so the 20% price decline would result in $520 more to save or spend.

It gets better.  Even though gas prices (and, therefore, the cost of driving) have plummeted, the Internal Revenue Service is raising the standard mileage rates that people can deduct on their tax return for business travel, from 56 cents in 2014 to 57.5 cents per business mile driven next year.

Only the investment markets seem to think that cycling an extra $70 billion into the U.S. economy is a bad thing.  This past week, large cap stocks, represented by the S&P 500 index, saw their prices fall by 3.5%—their biggest drop since May 2012. Why?  The only possible explanation is that rapid Wall Street traders believe that lower oil prices will harm the economies of America’s trading partners, and therefore impact the U.S. economy indirectly.

So let’s take a closer look.  While U.S. consumers are cheering the decline in oil prices, and non-energy producing nations like Japan and countries in the Eurozone are seeing a boost in their economies, who’s NOT celebrating?

As it turns out, some of the biggest losers are American domestic shale oil producers, who basically break even when oil prices are at their current $50-$60 a barrel levels.  Any further drop in prices would slow down domestic energy production, and probably create a floor that would keep prices from falling much further.

Another big loser is the socialist government in Venezuela (remember Hugo Chavez?), which needs oil prices above $162 a barrel to pay for all of its social programs.  You can also sympathize with Iran, which reportedly needs oil prices to move up to $135 barrel to stay in the black, due to continuing sanctions from the world community over its nuclear program, and the high cost of supporting Hezbollah and its own military ventures in the Middle East.

The biggest loser is probably Russia, which requires oil prices of at least $100 a barrel for its budget to withstand international sanctions and finance its own military adventures against neighboring nations.  Economists are projecting that Russia will fall into a steep recession next year, when GDP could decline as much as 6%.  The nation is experiencing what economists call “capital outflows” of $125 billion a year—a fancy way of saying that wealthy Russians are taking money out of Russian banks and either investing abroad or putting their rubles in banks located in more stable foreign jurisdictions.  And in the process, they are exchanging their rubles for local currency, as a way to protect against the recent free-fall in Russia’s currency.  Bloomberg News recently published the below graphic which many Americans will find entertaining, but which is probably not happy news for Russian President Vladimir Putin.

Fear or Cheer Plunging Oil Prices

It’s interesting that the markets seem to be worrying about low oil prices when the economies with the most to lose are not only less than minor trading partners, but actual political enemies of U.S. interests. Cheaper oil will eventually be regarded as a plus for our economic—and political—interests, but the downturn suggests that Wall Street traders are hair-trigger ready to be spooked by anything they regard as unusual.

If you would like to discuss your current portfolio or any financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Sources:

http://www.marketwatch.com/story/5-countries-that-will-be-the-biggest-losers-from-oils-slide-2014-11-20?page=2

http://blogs.piie.com/realtime/?p=4644

http://www.accountingtoday.com/news/irs-watch/irs-raises-standard-mileage-rate-for-businesses-72990-1.html?ET=webcpa:e3476082:a:&st=email&utm_content=buffer4179f&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

http://www.forbes.com/sites/northwesternmutual/2014/11/27/lower-oil-prices-give-a-gift-to-consumers/

Posted in Consumers, energy stocks, Financial Planning, General, markets, retirement planning. Tags: , , , , , . Leave a Comment »

No Shutdown, No Problem

December 15, 2014 — Sam H. Fawaz

The good news from Congress this week is that it looks like the U.S. government isn’t going to have to shut down again due to partisan political bickering.  Last week, literally at the last minute, on the day that current funding provisions would have expired, the U.S. House of Representatives created a new government funding bill that will keep the lights on until September of 2015.  The narrow 219-206 vote also gave the Senate a grace period until Monday to approve the legislation dubbed “CRomnibus” before everybody goes home for the holidays.  The Senate followed suit and sent the bill to the President for signature on Monday.

In all, the spending legislation comes to 1,603 pages, and both Democrats and Republicans seem to be unhappy about it—for, of course, very different reasons.  But when you get past the immigration and health care reform debate on the right, and the rollback of Dodd-Frank provisions that would have barred Wall Street firms from using taxpayer-backed funds to engage in risky derivative trading that angered politicians on the left, the bill really doesn’t have much of an effect on most of us.  It keeps domestic spending essentially flat at $1.013 trillion, while providing additional funds to fight Islamic state militants in the Middle East and the Ebola outbreak in West Africa.  There are no new taxes, and enforcement of the current taxes is likely to be less stringent after the Internal Revenue Service’s budget was cut by $345.6 million—roughly what it costs to hire 5,000 auditors.  Also defunded: the Environmental Protection Agency, whose budget has been rolled back to 1989 levels.  And a specific provision will prevent the Fish and Wildlife Service from adding a Western bird called the sage grouse to the protected species list.

Perhaps the most interesting provision in the House-passed bill, which is not mentioned in the press anywhere, can be found in Section 979, where our lawmakers set salaries and expenses of the House of Representatives at a highly budget-conscious $1.18 billion, with a “b”.

Now the House and Senate will spend a few days debating whether to pass extensions of 55 different tax credits, including tax deductions for research and development expenses by U.S. corporations, tax credits for renewable energy production plants, and a provision that would exempt forgiven mortgage debt from taxable income.

Sources:
http://www.vox.com/2014/12/11/7376585/cromnibus-2015-appropriations-details

http://news.yahoo.com/real-reason-obama-pushed-house-144001131.html

http://www.cnn.com/2014/12/10/politics/policy-riders-spending-bill/index.html

http://news.yahoo.com/u-senate-appears-set-pass-spending-bill-timing-153042041–sector.html

http://www.csmonitor.com/USA/DC-Decoder/2014/1210/From-marijuana-to-Islamic-State-five-things-addressed-in-new-budget-deal-video

http://www.scribd.com/doc/249716409/Congressional-spending-compromise

http://www.msn.com/en-us/news/politics/us-house-narrowly-passes-spending-bill-averts-government-shutdown/ar-BBgEXlY?ocid=ansnewsreu11

http://news.yahoo.com/tax-extenders-expected-win-u-senate-approval-within-152109690–business.html

Posted in General. Tags: . Leave a Comment »

Investor Know Thyself

December 10, 2014 — Sam H. Fawaz

In an ideal world, emotions would play a very small role in the way people invest and manage their money. Everyone would thoroughly research their options, maintain realistic expectations, and keep counterproductive habits under control.

But in the real world, even well-informed investors sometimes make emotionally charged decisions that may threaten their ability to stay focused on important financial goals, such as accumulating enough money for retirement. In fact, such missteps are so common that many academics have done extensive research on “investor psychology” or “behavioral finance” to explain why some people tend to keep encountering the same obstacles in their financial lives.

Behavior Insights

As you might imagine, different financial attitudes can result in very different consequences. For example, the behavior known as “anchoring” is the tendency for investors to hold on to a belief based on their own limited experience, despite the availability of contradictory information.

For instance, someone who lived through the Great Depression might be more likely to be a conservative investor, while someone who did very well in the market during the 1990s might tend to be a more aggressive investor. Of course, history shows that that type of decline or growth experienced by such individuals, is more the exception than the norm. As such, one possible result of anchoring is making long-term investment decisions based on misguided performance expectations or incomplete facts.

Overconfidence in one’s own abilities is another mindset that could make it more difficult to achieve lasting financial security. Why? Because it may lead investors to ignore sound advice, misunderstand goals, and potentially implement inappropriate investment strategies. On the other hand, a lack of confidence may be to blame for the “fear of loss” (or “fear of regret”) that causes some nervous investors to adjust their portfolios too often — or not often enough.

You’ve Got Personality

It can also be insightful to think about what type of “financial personality” you have. “Impulsives,” for example, are prone to spending spontaneously and not saving enough. “Planners,” however, are in the habit of setting aside as much as possible and sticking to an appropriate investment strategy.

If you would like to discuss your financial personality or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

Posted in Fee-only, Financial Planning, General, investing. Tags: , , . 1 Comment »
« Older posts
Newer posts »