Fake Malware Warning Traps

May 7, 2009 — Sam H. Fawaz

There’s an increasingly common method that hackers use to install malware (e.g., virus, Trojan Horse, adware, key logger, etc.) onto your PC, with your help.  Malware distributors hack commonly accessed and unsecure websites and plant a hidden script on the site, which is subsequently downloaded by your browser (mostly Internet Explorer, sometimes Firefox) without your knowledge.  When you open your browser, you see a warning that your PC is infected with malware.  Most people think that their PC’s own anti-malware software is giving the warning, but it’s actually a website created by the hackers.

When the website opens – it gives you one or more warning messages that your PC has been infected, and then tells you to run the software which supposedly removes the malware.  If you click on it, the opposite of removal occurs.  The file that you are tricked into installing and running is the malware itself.  By clicking on it, you are giving it permission to install it on your PC.  In some cases, the hackers are peddling anti-malware software themselves so they trick you into believing that their software is the only one that can remove the bogus malware.  Never buy from these people.

Your best defense is to have good anti-malware software installed on your computer and keep it up to date.  Also, it is essential that you run regular Microsoft Windows security updates.   If you receive an unfamiliar malware message on your PC or in your browser, just close all your browser windows and run a full system scan using your anti-malware software.

You should know exactly what kind or brand of anti-malware software your PC is running, so you can recognize whether the warning message is legitimate or not.   If you don’t know what anti-malware software you are running, or don’t know if your computer is being kept up to date, then ask your information technology person.  Most importantly, be skeptical of any unfamiliar malware warning; merely clicking on it could trigger installation of the malware.  Don’t be afraid to ask someone more knowledgeable about these things if you’re not sure what to do.

Posted in Technololgy. 3 Comments »

Google Voice is a Game Changer

May 4, 2009 — Sam H. Fawaz

How many phone numbers are you currently reachable at?  Two? Three? Four? Maybe even five?  Let’s see: you’ve got the home, office, mobile, and home office phone lines where you’re reachable.  So if it’s any more than one number, that can make phone communications with clients, friends and family less than 100% efficient.  Add multiple voicemail boxes to check and it becomes even less efficient.

While we’d all like to think that one day we’ll only need our mobile phones as our single point of contact, that reality is still several years away.  A study by the Center for Disease Control and Prevention (CDC) showed that a mere 15.8% of U.S households have cut the landline cord and switched to mobile service exclusively.  Spotty coverage, sometimes poor voice quality and lack of consistent 911 emergency services are among a few of the reasons we still rely on a land line.  For many of us, this means at least two phone lines to answer.

So wouldn’t it be great to be able to give out a single number to everyone to reach you without having to worry about where you might be?  That single number would ring all of your phones simultaneously and you could pick up the call from any phone that’s handy.  And if a caller left a voicemail, you’d only have one box to check.  That’s the idea (and much more) behind GV, a web-based telecommunication service.

To continue reading this article, which is posted on the FPA of Michigan web site, please click on this link: http://bit.ly/16UFua

Posted in Technololgy. Tags: , , , , , . Leave a Comment »

Cool Tools, Part 1 of 2

May 4, 2009 — Sam H. Fawaz

Every day I use tools that save me time, keystrokes and secure my data.  In this article, I will share some of my favorite cool tools. You will find them easy to use and big efficiency boosters. The best part is most of them are free or cost very little and are free of spyware.

To continue reading, please click on the following link to the full article on NAIFA’s Advisor Today web site: http://bit.ly/JGBTs

Posted in Technololgy. Tags: , , , , , . 1 Comment »

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.

Posted in General, investing. Tags: , , , , , , , , , . 2 Comments »

How Does the Stimulus Plan Affect You?

April 3, 2009 — Sam H. Fawaz

The biggest benefit from the $787.2 billion federal stimulus package will hopefully be a noticeable improvement in the nation’s economy.  But on an individual level, it’s wise to check if you might be eligible for benefits in health care, education, various tax credits, and housing.

A visit with a tax expert or a financial adviser such as a Certified Financial PlannerTM professional can help you determine the best ways to use the following provisions that may affect you.  It’s also a good idea to get a financial checkup in an uncertain economy such as we are experiencing for the following reasons:

  • As much as it might hurt to look at the performance of your current retirement accounts and other investments, the economy will recover.  When an upturn comes, it’s wise to position your holdings to take full advantage of the recovery.
  • Your future plans with regard to spending for your home, your family and your education come into sharp focus under the stimulus plan, and making these provisions work for you in the short-term should be part of a long-term plan.
  • If you fear that your job might be in danger in the coming months, or if you might be facing pay or benefit cuts, it’s good to talk through your personal finances before your employer makes a move.  The best time to prepare for a job loss is while you’re still making a salary.  Not only is it a good opportunity to build an emergency fund, but it’s generally easier to look for new opportunities while you still have your current one.  Your emergency fund should be at least 3-9 months of salary, with a minimum of $1,000.

Here’s a quick summary of the stimulus plan provisions that may affect your finances:

Educational provisions:

College student aid: The package awards $15.6 billion to increase maximum individual student Pell grants by $500.

American Opportunity Tax Credit: This credit temporarily provides taxpayers with a new tax credit of up to $2,500 of the cost of tuition and related expenses, though it phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).  Forty percent of the available credit is refundable, which means that you could receive a refund even if you have no tax liability.

529 Plans: The scope of allowable education expenses expands to now include computers and computer technology.

Tax credit provisions:

One more cap for the Alternative Minimum Tax (AMT): Lawmakers put one more patch on the AMT to protect a wider number of people from getting hit.  This latest break for potential AMT targets increases the exemption amounts to $46,700 ($70,950 for married couples).  The bill would also exclude interest on all private activity bonds issued in 2009 and 2010 from the AMT.  Normally, interest on private activity bonds is added back as an AMT “preference item,” thereby increasing the AMT .

“Making Work Pay” Tax Credits:  This is the refundable tax credit of up to $400 for individuals and $800 for families for 2009 and 2010 that phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples).  This isn’t a lump sum payment, but instead is reflected in reduced payroll taxes starting in April or May of this year.

Car Buyers Tax Credit: This allows a deduction for state and local sales and excise taxes paid on the purchase of a new vehicle through 2009.  This deduction is phased out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).

Expanded Child Credit: This increases the eligibility for the refundable child tax credit in 2009 and 2010 by reducing the minimum income for eligibility to $3,000.

Earned Income Tax Credit: This provision will create a temporary tax credit increase for working families with three or more children.

Housing provisions:

Refundable First-Time Home Buyer Credit: First-time home buyers (generally, someone who hasn’t owned a home in the last three years) can claim a credit worth $8,000 – or 10 percent of the home’s value, whichever is less – on their 2008 or 2009 taxes.  The added bonus is that the credit is refundable, which means that filers will see a refund of the full $8,000 even if their total tax bill is less than that amount.  Note that the term “first-time home buyer” has several conditions, so you may be qualified even if you have actually owned a home in the past.

If you’ve already filed your 2008 income tax return, and you’ve completed a qualified purchase in 2009, then you can amend your 2008 return or claim the credit on your 2009 return.  Alternatively, if you are contemplating a home purchase by October 15, then you may want to request an automatic extension by filing form 4868 with the IRS by April 15.

Married couples do not qualify for the first-time home buyer credit if either spouse has owned a home in the last three years.

Unemployment and Healthcare-Related Benefits:

Extension of Unemployment Benefits: The package provides 33 weeks of extended benefits through Dec. 31, 2009.

Unemployment Compensation: The first $2,400 a person receives in unemployment compensation benefits in 2009 won’t be taxed.

Short-Term COBRA Subsidy for Involuntarily Terminated Workers: This provides a 65 percent subsidy for COBRA premiums for up to 9 months, which will put a dent in the considerable cost of COBRA health benefits for the unemployed.  The subsidy phases out for high income individuals.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc.,a registered investment advisory firm.  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 may change without prior notice.

This column is based on content provided by the Financial Planning Association, the membership organization for the financial planning community, and is provided by YDream Financial Services, Inc., a local member of FPA.

Posted in General. Tags: , , , , , , . 1 Comment »

Are Mutual Funds Becoming Obsolete?

April 1, 2009 — Sam H. Fawaz

The markets that we’ve seen during the past several months are unlike any others I’ve seen in my lifetime.  In fact, they’re probably unlike the markets most of us have ever seen.   This market upheaval has caused me to re-examine everything that I thought was “sacred” about investing and the markets. This in turn has led me to begin questioning many basic premises about how financial planners think about investing, proper diversification, and trading.  Specifically in this article, I’m looking at the future of saving and investing in mutual funds.

I’m by no means an expert in this area.  But I have taken to reading and researching as much as I can about what works and what doesn’t work while saving and investing for the long and short term.  Between listening to tons of podcasts, attending numerous webinars and conferences, reading books, newsletters, magazines and newspapers, I’ve become intimately familiar with the arguments advanced by “buy and hold” crowd and their counterparts, the “market timers.”  I’ve learned that both approaches have their merits, and each has its time and place in the right types of markets.  This article is not about those merits or which method is superior.

While re-examining and researching mutual funds in client and prospect portfolios, and seeing how much some of them suffered in this awful bear market, I keep asking myself if there is a better way to invest their money.  Even though most mutual funds were down 35-50% over the past twelve months, I shook my head in disbelief that many of the same funds, even as late as January 2009, were still ranked as four and five star funds by the investment rating firm Morningstar.  Really?  Four and five stars were given to funds ranked in the bottom 35% of their category?  Funds that had double-digit negative annualized returns for 1, 3, and 5 years still earned three or four stars?

Just to be clear, as an advisor, I don’t rely on Morningstar “Star” rankings to rate and choose funds for my clients and prospects.  I dig much deeper into the details and third party information for comparison, research and evaluation purposes.  But I know that many consumers do rely on star rankings.  And I have to wonder how much of a favor Morningstar is doing for consumers when managers who are paid handsomely to manage mutual funds missed the whole financial crisis and didn’t steer their funds away from the financial or the big oil stocks in the second half of 2008.

In a secular bear market like the one we’ve been in, buying and holding mutual funds (or any investment for that matter) can be a money losing proposition.  But mutual funds have a few characteristics that make them even riskier, if not downright inappropriate for certain market conditions.

One characteristic that makes mutual funds riskier is the once-a-day, end-of-day pricing; you can’t get intra-day pricing on a mutual fund like you can on a stock.  If the market is trending down, there’s no way to cut your losses when the writing’s on the wall and the market’s headed for a big daily loss.  Wouldn’t it have been nice, on an 8% down day, to cut your losses in half?  Well, sorry, you can’t; you have to ride it all the way down.  Of course, on an up day, you may benefit from the extra upside.  Exchange traded funds (ETFs), which trade just like stocks, don’t suffer from this disadvantage and can be bought and sold at intra-day prices.

Another risky characteristic of mutual funds in bear markets, closely related to the above characteristic, is the inability to put a stop-loss order on a mutual fund.  If the market is crashing, and you’re unable to monitor your investments every minute that the markets are open, you could lose big or give up a good chunk of your gains.  Stocks and ETFs don’t have this disadvantage; you can have a standing stop-loss order on them with your broker for up to 6 months.  As soon as the stock or ETF drops to the sell-stop price, a sell is triggered and voila, you’re in cash, protected from further downside.  This gives you time to assess market conditions and decide on your next investment.

The inability of most mutual funds to deviate from their stated investment objectives prevented many mutual funds from cashing out on money losing stocks (almost all of them in 2008) and being able to sit on the sidelines with significant amounts of cash.  Funds with more flexibility in their cash positions, and those with the ability to take inverse (e.g., short) positions fared better than most in this bear market.  To be fair, many ETFs are index-based and have the same problem.

Mutual funds also suffer from a lack of timely disclosure of their investment holdings.  While they all publish their stock and bond holdings, most holding lists are usually at least three months old.  Mutual fund managers don’t like to publish their holdings more frequently so they don’t have to tip their hand to the competition.  It’s important to know what investments your funds are holding so you don’t duplicate or overlap your holdings with funds carrying the same stocks or bonds.  And if your fund was still holding, say Washington Mutual when it was sold for pennies on the dollar to JP Morgan Chase, maybe you would have known better to avoid the fund.  ETFs are much more transparent and publish their holdings on a daily basis.

Many will argue that ETFs have commissions that must be paid to buy and sell them, thereby making them a more costly option than mutual funds. To that I say three things: 1) commissions at most big brokers are about $19.95 or less; 2) the potential higher-gain or lower-loss on an ETF may pay for the commission in multiples; and 3) many desirable mutual funds have transaction fees much higher than ETF commissions at many brokers.

So will the mutual fund industry eventually die? I don’t think so.  Mutual funds are so ingrained in institutional settings and retirement plans that they likely have a long future ahead of them.  But I have a feeling that the mutual fund industry is already trying to reinvent itself.  Many of the big mutual fund companies have gotten into the ETF business because of the net (negative) out-flows from mutual funds and the net (positive) in-flows to ETFs.  Perhaps mutual funds will get some of the nice advantages that ETFs have like intra-day pricing, sell-stops and timelier holdings disclosures.

What I also hope for is that more 401(k) and self-directed retirement plans embrace ETFs and give employees the option to invest in them.  That way, they’re not sitting ducks when the markets come crashing down.

Do you think that mutual funds are headed for extinction? Do you think that employees should have more choices (e.g., ETFs) when it comes to their 401(k) investment choices? Please let me know what you think.

Posted in investing. Tags: , , . 1 Comment »

Rally Week Market Update For Week Ending 3/27/2009

March 28, 2009 — Sam H. Fawaz

We had a pretty good streak going in the markets this week until Friday’s profit taking spoiler. The technology laden NASDAQ index was even in the black year-to-date, if only for one day.  Despite the 20% plus gains over the last few weeks, all indexes remain in negative territory year-to-date and we remain in a treacherous bear market despite this rally.  Continued caution remains the advice on investing.

Are we at a bottom yet? Read on for one theory.

The severity of this bear market is a crisis in confidence more than anything else. What started out as a crisis in subprime mortgage loans quickly spread to leveraged instruments including credit default swaps and subsequently evolved into a more generalized crisis in confidence.

Over the past few months, recession pressures and a gloomy consumer mood have propelled financial markets lower. That’s why consumer expectations, usually considered an indicator of future spending, is an important gauge to watch.  The consumer outlook for the future, as measured by the University of Michigan/Reuters sentiment survey, fell in February before improving in early March.  The Conference Board also releases a monthly consumer survey; in February, expectations fell to a 40-year low.

With massive government stimulus now in place, the consumer mood could brighten in the months ahead.  New data for the University of Michigan/Reuters survey of consumer sentiment released Friday came in at 57.3 for March; that’s up slightly from February’s 56.3.  It was also slightly better than expected, but still near the worst reading in 30 years.

The Conference Board results will follow next Tuesday. If a market bottom is truly in place, we may see an upturn in this measure as well, according to analysts.

I remain skeptical of government estimates of personal spending and income, home sales increases, and unemployment.  First, they are estimates that ultimately get revised unfavorably when the real data becomes available.  Second, the pundits as well as the administration are content to “spin” any good news to suit their current agenda and to take credit for any positive news.  Finally, contrary to CNBC “entertainer” Jim Cramer’s assertions, the fundamentals of the economy still don’t support a solid upturn yet.  First and second quarter 2009 earnings reports will likely bear this out, so I’m pretty sure that we’re not out of the woods just yet; and not for awhile anyway.  Hopefully I’m wrong and this bull market will continue, but I continue to urge caution when investing.

Do you agree or disagree? I’d love to hear what you think.

Market Update For Week Ending 3/27/2009

Index

Close

Net Change

% Change

YTD

YTD %
DJIA

7,776.18

+497.80

6.84

-1,000.21

-11.40
NASDAQ

1,545.20

+87.93

6.03

-31.83

-2.02
S&P500

815.94

+47.40

6.17

-87.31

-9.67
Russell 2000

429.00

+28.89

7.22

-70.45

-14.11
International

1,083.64

+29.04

2.75

-153.78

-12.43
10-year bond

2.76%

+0.14%

+0.52%
30-year T-bond

3.62%

-0.04%

+0.93%

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 Y.D. Financial Services, Inc., a registered investment advisor. 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 investing, markets. 2 Comments »

How Consumers Can Avoid Being “Madoff’ed”

March 24, 2009 — Sam H. Fawaz

As you are probably aware, Bernard Madoff, former NASDAQ Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, has recently pled guilty to all charges against him and will be in jail for a very long time.  Incredibly, I’ve recently spoken with several individuals and they seemed to not be aware of Madoff’s most egregious offenses.

What did he do?  Madoff collected money to invest from clients, made up false statements to show that they were doing well, and used new clients’ money to pay interest and withdrawals to existing clients.  This is known as a Ponzi scheme and is estimated to involve more than a $50 billion loss for his investors.

Bernard Madoff’s Ponzi Scheme stands as an example of how the financial services industry has failed to protect the best interests of consumers. It highlights the increased need for consumers to proceed cautiously when working with an advisor and the importance of asking pointed questions before hiring a professional.

His clients didn’t see this coming.  Could they have?  Let’s look at three key safety tips that would have prevented this from happening:

Know what you own.  Stay with traditional investment vehicles such as 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, while the exchange is open.  With the exception of common trust funds, you should be able to access pricing and performance of your individual investments in the newspaper or the Internet.

Use an independent custodian.  Madoff held his clients’ assets, managed them, and priced them via internally generated investment statements.  Naturally the investment performance will look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite market turmoil.

For example, as a registered investment advisor, we have selected TD Ameritrade Institutional as the custodian for our client accounts.  TD Ameritrade Institutional, as an independent third party, prices the investments owned and provides monthly statements to clients.  We have no control or input on investment pricing.

Each money management client of ours signs a Limited Power of Attorney on their TD Ameritrade accounts.  This limited power of attorney only allows us to:

  • Place trades in the account on clients’ behalf;
  • Receive copies of monthly statements, tax documents and trade confirmations;
  • Deduct our investment management and financial planning fees directly from the account.

While we can request a distribution on a client’s behalf (which must be mailed to their home address or transferred to another account in their name), our ability to withdraw funds from client accounts is limited to the payment of our financial planning and investment management fees.  Clients are always free to pay their fees by check and are never obligated to use direct deduction from their accounts.

Inquire about insurance.  Our clients benefit from fraud insurance.  Each client is insured with the Securities Investor Protection Corporation (SIPC) with coverage of $500,000 per account.  Keep in mind that fraud insurance does not protect against market declines; but it does protect against theft of securities or related fraudulent transactions.

Now as the post-Madoff era begins and the federal government and industry regulators decide the best course of action to protect consumers, people need to ask the right questions of an existing or potential advisor.

As a member of the National Association of Personal Financial Advisors (NAPFA), the country’s leading association of Fee-Only financial advisors, I encourage consumers to take the time to get to know an advisor and gauge his or her commitment to placing clients’ interests first.

Find out how the advisor and his or her firm are compensated.  Fee-Only compensation has the fewest conflicts of interest, but there are other acceptable methods as long as full disclosure takes place up front.  It’s important to know if an advisor will make additional money if you follow certain recommendations.

You should always know where your money and securities are actually held. As discussed above, most reputable advisors will use an unaffiliated custodian for the safe keeping of your assets.  This simple check and balance could have saved the Madoff investors millions by bringing the problem to the forefront earlier.

Legally, all clients are entitled to a copy of the firm’s Form ADV Part II or brochure.  It’s a compliance document that can be pretty dry reading, but it contains a lot of important information and ultimately shows that the firm is registered with the SEC or the state(s).  For an example, see our Form ADV Part II.

NAPFA and the Fee-Only advisor community are hopeful that the new administration, the SEC and other regulatory bodies will enact thoughtful regulations to protect consumers.

Consumers can access a Financial Advisor Checklist and Financial Advisor Diagnostic on the NAPFA website by visiting www.NAPFA.org and clicking on the Tips and Tools button in the Consumer Information section.  The Diagnostic tool includes an answer key to help consumers understand NAPFA’s recommendations for the most appropriate answers to the questions.

One final thought. One of the statements most widely used in basic investment course work is “if an investment sounds too good to be true, it probably is.”  Reportedly, Madoff claimed consistent annual returns of 10-12% with little volatility and no quarterly or annual losses.  I am not aware of any legitimate and reputable portfolio manager that can make that claim.  There simply is no investment available that doesn’t carry risk; certainly, any investment that pays those levels of return have inherently high risk.

Have you or anyone you know been a victim of Madoff? Please share your story and comments below.

Posted in General. 4 Comments »

Roller Coaster Market Ride for the Week Ended March 20, 2009

March 21, 2009 — Sam H. Fawaz

It was a roller-coaster ride on the markets this week. First we were down, then we were up, then we were down again. As I wrote earlier this week, volatility is here for a while in the markets and, although we were up overall for the week, the fundamentals just aren’t there to push things in a consistent upward direction.

Congress’ distraction with the AIG bonus debacle meant that they were focusing on that instead of moving along the plan for dealing with the financial crisis. As a result, companies are equally distracted by concerns of whether accepting further government help means more meddling in their business affairs. So instead of lending money, for example, financial institutions become more concerned about paying back the government and operating independently, thereby negating the whole benefit of the bailout. In addition, much needed talented employees may consider joining firms with no government restrictions on compensation or potential exorbitant taxes on their bonuses.  I’d be interested in your opinion here-please feel free to leave comments below.

I predict that we will continue to see some up days, some down days and generally sideways movement in the markets for some time. In the short-term, although we may see some net positive gains, there seems to be more risk than reward out there. Caution is still the approach we encourage.

My advice remains the same: consistent saving is your best defense against volatile markets. Keep contributing to that 401(k), IRA and your “dream” accounts. Pay down your debt as much as possible and make sure that you have a liquid emergency fund of at least 3-9 months of salary. And, as financial guru Dave Ramsey says, “refuse to participate in this recession” by enjoying every day, taking those vacations, and keeping in touch and sharing time with your loved ones.

Enjoy this first weekend of spring 2009. And remember, if the first robin of spring sees its shadow, you can expect at least twelve more weeks of crabgrass (at least according to “Magic” Matt Alan of Sirius-XM 70’s on 7.)

I’ve provided a weekly summary of the markets below:

Market Update For Week Ending 3/20/2009

Index

Close

Net Change

% Change

YTD

YTD %

DJIA

7,278.38

+54.40

0.75

-1,498.01

-17.07

NASDAQ

1,457.27

+25.77

1.80

-119.76

-7.59

S&P500

768.54

+11.99

1.58

-134.71

-14.91

Russell 2000

400.11

+7.02

1.79

-99.34

-19.89

International

1,054.60

+74.07

7.55

-182.82

-14.77

10-year bond

2.63%

-0.26%

+0.38%

30-year T-bond

3.65%

-0.02%

+0.96%

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. 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 may change without prior notice.
Posted in General, investing, markets. Tags: , , , . Leave a Comment »

Pre-Spring Rally: Short-term or Long-term?

March 16, 2009 — Sam H. Fawaz

Last week’s continued rally on Wall Street was welcome news for weary investors.  The 10%+ rise in the stock market was not sufficient to erase year-to-date losses, but any upside is welcome. The catalysts for the rally included positive reports from the financial institutions taking government help, talk about changing trading rules for short sellers, and the possibility of an accounting change in how assets are valued on company balance sheets.  Also, the markets were heavily compressed on the downside, so just like a spring, they had to give a little to the upside.

Unfortunately, the fundamentals of the economy still do not support a long term rally, so this secular bear market is not over.  What we’ve seen this past week is likely not the bottom and we are therefore approaching the markets very carefully.  There is more bad news to come from 1st and 2nd quarter poor earnings reports as the weak economy hits more and more companies.  From exporting companies to the big international firms, the global slowdown is hitting almost everyone.  Even hospitals are being challenged, and unemployment is sure to rise.  We’ve seen the effects of the sub-prime mortgage mess, and I don’t think we’re nearly done as more of the next tier of (higher quality) adjustable rate mortgages adjust upward.  Add to that the lagging commercial real estate markets which are no doubt feeling the effects of lower property prices and lower occupancy.

A lot of you have stayed in the market the whole time it has been falling and are wondering what to do.  If you have a ten-year time horizon, you can probably buy now and not worry.  But I wouldn’t make any big moves right now based on this short-term upturn.  If you are making regular contributions to your IRA or 401(k), you should continue to do so to help offset some of the past losses and buy companies at ½ off (or 2 for 1 depending on your favorite shopping term).  As I’ve said before, there is just no substitute for regular and big savings.  We could see this real bear market rally lure investors back in, just to crush their hopes soon thereafter.  As always, each person’s individual situation and goals are different, so you should talk with your own financial planner about what makes the most sense for you.

I believe that we have awhile to go in the current secular bear cycle. While we will see a “bottom” in stock prices at some point, maybe even this year, many believe that stocks are still overpriced relative to their future earnings potential.  No doubt, there is another bull market in our future  But I would rather be patient and rely on a cautious style of investing for now.  If I see opportunities to make short-term profits with some tactical moves for my clients, I will make them while limiting our downside risk.  But if I miss the first part of this run-up, so be it.  I see more risk than reward in this latest run-up.

And if you thought this posting was all bad news, then I’ll remind you that (my favorite season) spring officially arrives this Friday at 7:44 AM Eastern Time.  I know that most of you have had enough of the snow and cold and welcome the anticipated change in weather.  Me too.

Sam H. Fawaz CFP®, CPA  is president of YDream Financial Services, Inc., a registered investment advisor. All material presented herein is believed to be reliable, but we cannot attest to its accuracy. All material represents the opinions of Sam H. Fawaz.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing may change without prior notice.  You can find out more information about YDream Financial Services at http://ydfs.com.

Some comments in this article were based on author John Mauldin’s recent and fine “Thoughts from the Frontline” newsletter. You can subcribe to it by clicking on the above link.

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