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“Basic Training”

April 19th, 2013 | No Comments | Posted in Financial News

With the major markets “at or near all-time highs” what are 401(k) investors supposed to do?

shutterstock_77180239No matter what investors do with their money, there are risks involved that could derail their financial goals.  If they invest, they could suffer losses.  If they don’t, inflation can erode the value of their savings.  For investors to reach goals, all of these risks need to be anticipated and managed through and incorporated into, a solid financial plan.

Build a plan, re-define your goals; not in terms of investment returns, but in terms of financial objectives:  home ownership, a child’s college education and, of course, retirement.  After that, investors need to stick to the basics of investing and the 401(k) is an important piece of that strategy.

Getting from here to there

To meet retirement, establish an asset allocation strategy that balances downside protection and upside participation:  not just one that chases a return.  Intentional investors have clear goals and a needs-based return for their portfolio.  Get into a diversified portfolio.

Stick to the recipe

At times like these, stay disciplined and rebalance your portfolio.  Especially in bull markets when markets are “at or near their all-time highs” and one asset class performs well, its proportion of your overall portfolio swells. Rebalance to your target allocation.  In other words, sell part of the performing asset class to bring it down to the intended weighting and, at the same time, buy into the lagging asset class, increasing your stake and boosting it back to your target allocation.  The model portfolios do this for you automatically every quarter, but if you invest on your own, you need to intentionally do this too.

Here’s the reality

Contributions matter much more than investment returns.  The returns from stocks, bonds, commodities and mutual funds can help grow wealth and protect it from inflation, but they alone don’t have the power to make investors wealthy.  The earlier you get in, the more you take advantage of compounding interest on your contributions, your employer’s match and the income tax savings from the deduction.  Maximize contributions, and at least contribute into your 401(k) up to your employer’s match.  Whether the market is up or down, continue to make contributions into a portfolio constructed to withstand a variety of economic conditions.

Finally, take ownership of your 401(k) and stay vigilant.

What is a College Degree Really Worth?

April 19th, 2013 | No Comments | Posted in Financial News

Is higher education really the prerequisite for success?

shutterstock_110036714Do you need a college degree to succeed? That assumption is long-entrenched, and it isn’t hard to see a relationship between education and earning power. Yet the cost and debt linked to getting a degree are so significant now that some contrarians are saying “skip it” – go learn in the world rather than on campus, if you’re smart you’ll do just as well in life.

When and how did such a controversial idea emerge? It has gained momentum in the past decade, especially in the wake of Robert Kiyosaki’s Rich Dad, Poor Dad. The best-seller contends that while financial literacy is crucial for success, a college education is not. Kiyosaki compares what he learned from his “poor dad” (his father, a Ph.D. who became Hawaii’s superintendent of education yet struggled financially) with what he learned from his hazily identified “rich dad” (a high school dropout who became the richest man in Hawaii). You may be a fan of the book, or you may not be; its popularity can’t be dismissed.1

Peter Thiel, the co-founder of PayPal, raised eyebrows in 2011 when he paid 24 collegians $100,000 each to drop out and start up tech firms. In a New York Times op-ed piece that summer, Thiel said that “learning should be done throughout life, and technology creates more ways to learn every year”. He wrote that in the near future, a conventional four-year college education “will be revealed as an antiquated debt-fueled luxury good”. A year after letting the world know that a traditional college education was all but obsolete, Thiel signed up to teach at Stanford University. (He has both a B.A. and a J.D. from Stanford himself.)2

Financially, it may be risky to enter adult life without a degree. Kiyosaki and Thiel aside, you don’t find many successful people dismissing the value of a university education. Less-educated people generally earn less than well-educated people.

All you have to do is look at Census Bureau data to see the relationship between education and salary. On page 152 of the 2012 Statistical Abstract of the United States, we find Table 232, Mean Earnings by Highest Degree Earned. It says that in 2009 (the most recent survey year), the average high school graduate earned just $30,627. The average bachelor’s degree holder pulled down $56,665. The average Ph.D. earned $103,054, and those with professional degrees (i.e., law or medicine) earned an average of $127,803.3

You get more than earning potential out of the college experience. The traditional, liberal arts-grounded university education gives you a skill set for life – social skills, cultural literacy, and a refinement of critical thinking that is invaluable, in addition to what you learn in your major. The friendships made in college may last a lifetime as well, with a positive effect on your career path. You also have the chance to discover who you are, and to possibly live on your own for the first time.

Does a college degree make that much of a financial difference in life? Just look at the Census Bureau data. Look at the anecdotal evidence everywhere around you. You may not need a college degree to succeed, but it does help your chances.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.time.com/time/magazine/article/0,9171,1908418,00.html [7/13/09]
2 – thechoice.blogs.nytimes.com/2012/03/13/peter-thiel-who-sees-college-as-a-waste-will-teach-at-stanford/ [3/13/12]
3 – www.census.gov/compendia/statab/2012/tables/12s0232.pdf [2012]

How LTC Insurance Can Help Protect Your Assets

April 19th, 2013 | No Comments | Posted in Financial News

Create a pool of healthcare dollars that will grow in any market.

shutterstock_69314236How will you pay for long term care? The sad fact is that most people don’t know the answer to that question. But a solution is available.

As baby boomers leave their careers behind, long term care insurance will become very important in their financial strategies. The reasons to get an LTC policy after age 50 are very compelling.

Your premium payments buy you access to a large pool of money which can be used to pay for long term care costs. By paying for LTC out of that pool of money, you can preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay the premiums. Genworth Financial conducts a respected annual Cost of Care Survey to gauge the price of long term care in the U.S. Here is a summary of the 2013 survey’s key findings:

*In 2013, the median annual cost of a private room in a nursing home was $83,950 or $230 per day – up 3.6% from 2012. In the past five years, the cost has risen about 4.5% annually.
*A private one-bedroom unit in an assisted living facility has a median cost of $3,450 a month, or $41,400 annually. It was 4.5% cheaper last year.
*The median payment to a non-Medicare certified, state-licensed home health aide is $19 an hour in 2013, up 2.3% from 2012.1

Can you imagine spending an extra $40-85K out of your retirement savings in a year? What if you had to do it for more than one year?

The U.S. Department of Health & Human Services estimates that about 70% of Americans will need some kind of long term care during their lifetimes. Additionally, 69% of Americans older than 90 have some form of disability – often a direct cause for long term care.2

Why procrastinate? The earlier you opt for LTC coverage, the cheaper the premiums. This is why many people purchase it before they retire. Those in poor health or over the age of 80 are frequently ineligible for coverage.

What does it pay for? Some people think LTC coverage just pays for nursing home care. That’s inaccurate. It can pay for a wide variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability or people who just need assistance bathing, eating or dressing.3

How much will your DBA be? DBA stands for Daily Benefit Amount – the maximum amount that your LTC plan will pay per day for care in a nursing home facility. You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA on a daily basis. The DBA typically ranges from a few dozen dollars to hundreds of dollars. A small number of these plans offer you “inflation protection” at enrollment, meaning that every few years, you will have the chance to buy additional coverage and get compounding – so your pool of money can grow.

Medicare is not long term care insurance. Some people think Medicare will pick up the cost of long term care. That is a misconception. Medicare will only pay for the first 100 days of nursing home care, and only if 1) you are getting skilled care and 2) you go into the nursing home right after a hospital stay of at least 3 days. Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill. That’s all.4

Now, Medicaid can actually pay for long term care – if you are destitute. Are you willing to wait until you are broke for a way to fund long term care? Of course not. LTC insurance provides a way to do it.4

Why not look into this? You may have heard that LTC insurance is expensive compared with some other forms of coverage. But the annual premiums – in the vicinity of $2,000-2,500 for the typical policy right now – are cheap compared to real-world LTC costs.3

Ask an insurance or financial professional about some of the LTC choices you can explore. While many Americans have life, health and disability insurance, that’s not the same thing as long term care coverage.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/131168_031813_Executive%20Summary.pdf [3/18/13]
2 – longtermcare.gov/the-basics/who-needs-care/ [3/18/13]
3 – www.marketwatch.com/story/long-term-care-coverage-worth-the-price-2012-12-04 [12/4/12]
4 – www.medicare.gov/longtermcare/static/home.asp [8/3/12]

Bonds and Interest Rates

April 19th, 2013 | No Comments | Posted in Financial News

A look at how one can greatly affect the other.

shutterstock_11315152Is the bond bull history? Bond titan Bill Gross called an end to the 30-year bull market in fixed income back in 2010, and he has repeated his opinion since. Legendary investor Jim Rogers predicted an end to the bond bull in 2009, and he still sees it happening. This belief is starting to become popular – the Federal Reserve keeps easing and more and more investors are leaving Treasuries for equities.1,2,3

If the long bull market in bonds has ended, the final phase was certainly impressive. During the four-year stretch after the collapse of Lehman Brothers, $900 billion flowed into bond funds and $410 billion left equities.2

In 2013, you have bulls running, an assumption that Fed money printing will start to subside and the real yield on the 10-year TIPS in negative territory. Assuming the economy continues to improve and appetite for risk stays strong, what will happen to bond investors when inflation and interest rates inevitably rise and bond market values fall?

Conditions hint at an oncoming bear market. When interest rates rise again, how many bond owners are going to hang on to their 10-year or 30-year Treasuries until maturity? Who will want a 1.5% or 2.5% return for a decade? Looking at composite bond rates over at Yahoo’s Bonds Center, even longer-term corporate bonds offered but a 3.5%-4.3% return in late March.4

What do you end up with when you sell a bond before its maturity? The market value. If the federal funds rate rises 3%, a longer-term Treasury might lose as much as a third of its market value as a consequence. It wasn’t that long ago – June 12, 2007, to be exact – when the yield on the 10-year note settled up at 5.26%.5

This risk aside, what if you want or need to stay in bonds? Some bond market analysts believe now might be a time to exploit short-term bonds with laddered maturity dates. What’s the trade-off in that move? Well, you are accepting lower interest rates in exchange for a potentially smaller drop in the market value of these securities if rates rise. If you are after higher rates of return from short-duration bonds, you may have to look to bonds that are investment-grade but without AAA or AA ratings.

If you see interest rates rising sooner rather than later, exploiting short maturities could position you to get your principal back in the short term. That could give you cash which you could reinvest in response to climbing interest rates. If you think bond owners are in for some pain in the coming years, you could limit yourself to small positions in bonds.

The Treasury needs revenue and senses the plight of certain bond owners, and in response, it has plans to roll out floating-rate notes by 2014. A floater backed by the full faith and credit of the U.S. government would have real appeal – its yield could be adjusted per movements in a base interest rate (yet to be selected by the Treasury), and you could hold onto it for a while instead of getting in and out of various short-term debt instruments and incurring the related transaction costs.6

Appetite for risk may displace anxiety faster than we think. In this bull market, why would people put their money into an investment offering a 1.5% return for 10 years? Portfolio diversification aside, a major reason is fear – the fear of volatility and a global downturn. That fear prompts many investors to play “not to lose” – but should interest rates rise significantly in the next few years, owners of long-term bonds might find themselves losing out in terms of their portfolio’s potential.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.bloomberg.com/news/2010-10-27/fed-easing-likely-to-mark-end-of-30-year-bull-market-for-bonds-gross-says.html [10/27/10]
2 – online.wsj.com/article/SB10000872396390443884104577645470279806022.html [9/15/12]
3 – www.bloomberg.com/news/2013-02-07/u-s-30-year-bond-losses-pass-5-as-fed-price-gauge-rises.html [2/7/13]
4 – finance.yahoo.com/bonds/composite_bond_rates [3/27/13]
5 – www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2007 [2/6/13]
6 – online.wsj.com/article/SB10001424127887324590904578287802587652738.html [2/6/13]

April 2013 Monthly Economic Update

April 19th, 2013 | No Comments | Posted in Monthly Economic Update

April - Monthly Economic Update

5 Mistakes to Avoid When Making Your Morning Coffee

April 19th, 2013 | No Comments | Posted in Lifestyle

coffeeThink your coffee is up to snuff? Chances are you’re guilty of one of these common mistakes when you make your morning brew. Major Cohen, an 18-year coffee expert and senior project manager in coffee engagement at Starbucks, knows how to make a cup.

“If you approach coffee as if you were a master chef or a master scientist, you can almost never go wrong,” says Cohen.

For top precision and accuracy, he measures the coffee beans and water in his morning cup with a gram scale.

If you’re not a coffee expert, here some top mistakes and ways to fix your morning brew.

1. Using tap or unfiltered water . A cup of coffee contains 98 percent water. “You have to be the judge of your tap water,” says Cohen. If your tap water tastes gross, chances are your coffee will taste just as terrible. Cold, filtered water is your best bet.

Check the water temperature, too.

“If you don’t have hot water, it’s not going to extract the right flavors when you brew it,” he says.

Cohen suggests using a thermometer if the coffee seems weak and all the other factors have been eliminated. At Starbucks stores, coffee is brewed at 205 degrees Fahrenheit and is a slightly cooler 175 degrees when it’s served to customers.

2. Storing coffee beans in the freezer. Coffee should be stored in a cool, dry place and away from the moisture of the freezer.

“As you take it in and out, moisture will condense on it and get wet,” he says.

Coffee storage should focus on preventing light, heat, air and moisture.

“Would you put fresh fish in the freezer? You never expect it to taste the same,” Cohen says, “It’s going to be detrimental to the products.”

3. Not using enough coffee per cup. If you’re eyeballing coffee quantities, you’re probably under-estimating. Most people use a drastically lower amount of coffee per cup than is required.

“They do that either because they’re trying to be frugal or, in our day and age, trying to stretch their resources as much as they can,” he says.

The result is a bitter and watery cup. Using two rounded tablespoons per six ounces of water is generally the rule of thumb for coffee making.

If you like a weaker cup of coffee, Cohen says, it tastes better if you add hot water to it than if you brew it with less beans.

“If people are trying to explore levels of intensity of taste, it’s good to experiment with roast,” he says.

Trying different roasts, from blonde to dark, is a good way to see what flavor you like the best.

4. Using the wrong grind . From French press to espresso machine, different machines require a different grind.

“The wrong grind is either going to hold the water back too much if its too fine, or its going to let the water run much too quickly,” he says.

Your best bet is to follow the instructions that come with the machine. A helpful tip is to think of common household items before you grind the beans. A coffee press requires a coarse grind, which resembles kosher salt. Espresso grinds look like powdered sugar and a fine grind is the texture of granulated sugar. A medium grind would be medium ground cornmeal.

5. Using too much coffee. If you think using more coffee beans in the morning is your best bet, you’re wrong. Using too many grounds results in under-extraction and less-than-ideal flavor.

“It does make a stronger cup, but it gets very, very bitter because the solid level will go up to 30 percent,” Cohen says. “Imagine if you were making bread and you used too much yeast. The bread is going to rise too much. … The bread is going to be an abysmal failure.”

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Strangest Taxes in America

April 19th, 2013 | No Comments | Posted in Lifestyle

Although taxes are one of life’s certainties, they can still surprise you.

Consider the iconic New York bagel: decide to have yours toasted, and it’ll come with a tax. The rationale is that sliced bagels are usually consumed on a café’s or store’s premises—and restaurant meals are taxed, whereas groceries (like a dozen unsliced bagels) are not.

State governments can be remarkably efficient when it comes to finding creative ways to pick up extra cash, and some of their esoteric taxes affect tourists as well as residents. Whether it’s a tax on a hot-air balloon ride over the plains of Kansas or a lid for a coffee cup sold in Colorado, these strange fees won’t inflict serious damage on your wallet. But they will make you say, “Huh?”

sliced-bagelsSliced Bagel Tax, New York

Bagels are a New York institution, but not all are taxed equally. Order yours cut in half or request it toasted or topped with cream cheese, and you’ll pay about 8 cents extra. Sliced bagels are usually consumed on a café or store’s premises—and in many states, restaurant meals are taxed, whereas groceries are not. (A loaf of sliced bread at a bakery comes tax free.)


Blueberry Tax, Maine

In Maine, blueberries are big business: the Vacationland State produces 99 percent of our nation’s blueberries, averaging 80 to 85 million pounds per year. If you enjoy some this summer, count on being taxed. Anyone “growing, handling, processing, selling, or purchasing” the famous export must pay up, according to Maine’s state legislature.

Playing Card Tax, Alabama

While you can bet you’ll be taxed on gambling in many states, Alabama takes a particularly hard line. Buy a deck of playing cards—even for innocuous reasons like keeping the family amused on a road trip—and it comes with a tax of 10 cents per pack. If you consider the tax unjustified, here’s some perspective: sellers pay an additional $1 per pack. On second thought, however, that cost probably gets passed right on to you.

Vending Machine Fruit Tax, California

California is known for farmers’ markets, heavenly produce, and restaurants that have long championed what’s fresh and local. And while fresh fruit is duty free, the pre-sliced variety of dubious origin sold in vending machines is not. If you’re somehow compelled to press the button, you’ll pay a staggering 33 percent tax—and honestly, you probably deserve it.

Coffee Lid Tax, Colorado

Order a latte to go from a Denver coffee shop, and you won’t have to pay an extra cent for the paper cup. But if you want a lid to prevent that hot liquid from spilling onto your pants (or, you know, burning your lap), that part of the container will be taxed. It turns out Colorado deems coffee lids and napkins to be “nonessential” packaging, which makes them subject to the state’s 2.9 percent tax.

Hot-Air Balloon Tax, Kansas

Unlike most amusement park rides, a hot-air balloon lets you linger high above the landscape and actually enjoy the view. But in Kansas, that luxury comes with a tax—unless the balloon isn’t tied down. Untethered, piloted balloons that travel some distance are considered a method of air transportation and so, thanks to the federal Anti-Head Tax Act, are exempt from the state’s amusement tax.

Tattoo, Piercing, and Electrolysis Tax,
Arkansas

If you’re seeking a more permanent road-trip souvenir, Arkansas may not be the best state to get inked. As of 2005, all tattoos, body piercings, and even electrolysis hair-removal treatments are subject to Arkansas’s 6 percent sales tax. In retrospect, this makes a sort of sense: Arkansas is officially known as The Natural State.

Strip Club Admission Tax,
Texas

Bring an extra five singles if you decide to scope out any of Texas’s 200 or so strip clubs. In 2011, club owners challenged the $5 “pole tax” passed in 2007, claiming it violated the right to free speech, but the court ruled it constitutional. The tax has so far raised more than $15 million—a portion of which funds sexual assault prevention programs.

Arrow Tax

No matter which state you visit, arrows will cost you. In 2012, the feds upped a long-standing excise tax on arrows. Now archery enthusiasts pay the Tax Man an additional 46 cents for arrows 18 inches or longer. Wooden arrows designed for kids are exempt, and the funds go toward wildlife restoration. (If you were wondering, bows are taxed at 11 percent.)

Air Tax, Pennsylvania

We swear this tax wasn’t implemented on April Fool’s Day. In the Keystone State, coin-operated vacuum vending machines are indeed subject to a “use” tax. So if you like to keep a clean car—or can’t wrap your head around paying a tax on oxygen and nitrogen—it makes sense to exit Pennsylvania before taking yours to the car wash.

See more of America’s Strangest Taxes.

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Gym Buddies: How to Find Your Ideal Workout Partner

April 19th, 2013 | No Comments | Posted in Lifestyle

BuddyIt can be a hard thing to find someone who you feel comfortable exercising with. Right? I mean, this is someone you have to feel okay sweating next to, someone who doesn’t mind if you make weird noises. You should feel no judgment from this person. If you’re trying something new and you don’t quite get it right, this person should be in your corner. Not only that, but this is someone you should be comfortable chatting with, and, ideally, someone whom you actually enjoy spending time with. Working out with her should be something you look forward to – it may even be the social/emotional aspect of the workout that gets you there.

But the perfect workout buddy should be more than just a friend. If you’re going to stay motivated and interested, if you’re going to improve and become more fit, your workout buddy should be . . . well, a lot of things.

1. Your equal

You two should be able to run at about the same pace, or be able to weightlift about as much as each other, or be equally talented with a racquet or a bat or whatever. If she’s not, it’s going to be discouraging for both of you.

2. A similar schedule

She’s a morning glory while you’d rather wait until the kids are in bed before heading to the gym? Probably not a lasting relationship. Look for someone who is willing and able to meet you at your best time, which should also be her best time.

3. Complimentary Strengths and Weaknesses

She’ll push you to go farther and faster than you thought you could, you’ll keep her from burning herself out. She’ll have technique she can teach you about, you’ll help her relax and enjoy the exercise.

4. Similar goals

You’re aiming to train for a race or enter a competition, but she’s interested in just staying in shape? Maybe not the best partnership. Make sure you’re on the same page for what you want to get out of the workouts before you commit.

5. A shared definition of “commitment”

You think “We’re meeting at 6:30″ means “We are meeting at 6:30,” but she thinks it means, “We’re meeting at 6:30 unless I decide not to at the last minute”? Better find someone else, someone who shares your belief about when it’s okay to bail on a workout or a goal.

6. Communicates clearly, honestly, and helpfully

You do the same for her. If you’re always biting your tongue about the way she gripes after every workout, or she’s afraid to tell you that the reason you’re not progressing is because you doubt yourself when you don’t need to, neither of you are going to be as good as you could be.

7. You let each other do your own thing.

She’s not you. You’re not her. You understand that. You respect it. You enjoy it.

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