Financial Frontlines®

The Marketing Departments of the investment world are always hard at work.  They are trained and ready to develop an investment vehicle that will satisfy your insatiable greed or quell your greatest fear.  Marketing departments feed on trends and public opinions.  The information age is to Marketing what the gym shower floor is to athletes foot.

Beware the latest hot marketed product.  Shortly after Y2K when interest rates started to drop (remember money market accounts at .5%?) it was the Floating Rate funds.  It was also the start of the popularity of the CMO, Collateralized Mortgage Obligation.  “You too could own other peoples’ mortgages and get their higher interest rate as your return.”  There were the Asian Tigers and every fund company had their version of the tiger.  Of course, the “dot net” and “dot com” funds.  Remember the good old days when your internet fund returned over 100%!  Man!, did that sector go bust in a hurry.  Equity indexed annuities were the rage for a while–in the land of scary market stretches, “guarantees” are king.  Insurance companies will always find a new product to get around a tax code.

Now what do we have?  Commodities in every shape and color so they are available to the average citizens looking to play with the big dogs of Wall Street.  Energy has been golden for a while.  Into Sci-Fi?  Look under the energy or technology sectors.  Exchange Traded Funds (ETF) proved to be popular in the beginning when they were a basic form to invest in stocks; and they still make sense for a lot of folks.  Once something proves to be popular, watch out! Now ETFs are being created to appeal to whatever’s the latest flavor of the day–currency exchange, specific country, specific sector–the MSN Money web site has 742 ETFs listed.  Hedge fund anyone?

As our means to communicate expand to infinity, the easier it gets for Marketing people to get their hooks in you and make a buck.  Hey, I’m all about free enterprise and capitalism but good grief.  Is it possible to have too much choice?  There is so much talk going on, I don’t know when to listen.  Well actually, I don’t listen to most of the smoke.  I’m not a trendy kinda guy.  Most of us have more basic needs and simpler ways to achieve our goals.  So the bottom line; KISS.

Ooh, check it out! There’s a currency ETF on the Swedish Krona!  I don’t think so.  What say you? 

“Buy…sell…buy gold…short stocks…get into oil futures contracts…the Fed’s gonna raise rates…watch out for inflation…”

Sound familiar? In today’s 24-hour news cycle…with business news channels worried about selling their next ad…the amount of “buzz” that fills the air around things financial on TV, radio, the Web and good, old-fashioned print media is astounding. But should you be listening?

According to investing curmudgeons like Paul B. Farrell of Marketwatch.com, probably not. I like Farrell’s musings for the most part and found one of his latest pennings good food for thought. His ‘Brainwashing 101 for Dummies (and Investors!): 11 Reasons Why Passive Investors let Wall Street steal their money’ is vintage Farrell and worth a read.

To a larger point though, how much action do you need to take when the market is on a roller-coaster ride? The answer – according to many seasoned investment pros who don’t have a vested interest in your buying their products – is not much.

By way of example, from 1987 through 2006, a single dollar invested in the S&P 500 Index would have grown to $9.31. However, if you had missed the best 17 months of market performance during that 20-year period through trying to time the market, sitting things out waiting for the market to improve or chasing after hot sectors, your single dollar would only have grown to $2.32…less than if you had simply left it invested in U.S. Treasury Bills, which turned a single dollar into $2.42 without any market gyrations (Source: Morningstar.com).

The moral of the story? Be very careful trying to “outsmart” the market. Consider using a broadly-diversified portfolio of low-cost index funds to build your investment base within the TSP, Roth IRAs and other long-term savings plans. Even the investment sage Warren Buffett – arguably the pre-eminent U.S. investor alive today – commented at the 2008 Bershire Hathaway Shareholder Meeting that the best investment for an individual in his or her 30′s is “…a very low-cost index fund from a reputable company”.

Who am I to argue?

NBC News commentator and Wasington Bureau Chief Tim Russert passed away unexpectedly of sudden cardiac death on Friday, June 13th.  He was only 58.

As a long-time news and Sunday AM talk show junkie, I greatly appreciated Russert’s even hand with the news.  Despite Democratic leanings, he took great pains to treat virtually every guest with an even-hand and asked tough questions.  He is probably one of the best journalists of the last 25 years.

I had the fortune to meet Mr. Russert while traveling on business several years ago and found him to be very approachable.  He happily autographed a copy of his book – quickly purchased by me in the airport bookstore – with a very nice personal note for my mother-in-law, who is a huge fan.  We parted ways after making small talk for a bit and I walked away thinking, “There is a gentleman”.

As I pondered his untimely death and wondered at the suddeness, I was struck by how many things I keep putting off ‘until tomorrow’…with the assumption that tomorrow will always be there.  I wonder how many things Mr. Russert pushed down the pike, with the tacit understanding that he could always get to them later? 

How many things that you either really want to do or really should do are you procrastinating on, figuring that you always have next week or next month or next year?  Quick…take a few moments and jot them down.  What’s stopping you from doing it right now?  I imagine that most of us have a list that is fairly long and that it ranges from the mundane, such as balance the checkbook to the important, such as spend more quality time with the kids to the epic, such as complete an Ironmman-length triathlon. 

As servicemembers in harm’s way…the potential that tomorrow may not come is ever-present, given the dangerous nature of the work and current combat operations.  Look down your list and think about what you would miss most…if today was the last day.  Got it?  Now I challenge you to go out and do it…right now!

Godspeed, Mr. Russert.

Some states love military families a lot – some a little and some not at all, at least when it comes to extending in-state tuition rates and benefits to the children of servicemembers.  Knowing which states provide the most generous benefits can save you a bundle when it comes time to pay for college.

The DOD In-State Tuition Map provides an interactive guide to which state does what.  States are rated green (good), yellow (some restrictions) and red (not good) when it comes to providing benefits in three key areas for servicemembers and their dependents:

• Eligibility in state of legal residence
• Eligibility in state of assignment
• Continuity of eligibility once established

For instance, California, currently rated as a yellow state, provides in-state tution for servicemembers and their dependents provided California is their home of record or they are there on PCS orders.  However, should a servicemember PCS to California, qualify for in-state tuition and then PCS to another state or overseas, in-state tuition continuity is not guaranteed.  Make sure you know these rules before commiting to school in a particular state!

The good news is that there has been significant movement in the last several years as state-level advocates – many affiliated with MOAA and other military associations – have pushed hard for more favorable tuition treatment for military families.  Many formerly yellow and red states have changed over to that happy color of green – which could mean savings for you!  Because of these frequent changes, make sure you check back frequently…

Details to consider.    These are details most folks don’t know or think about until it’s too late and they are in deep.

• Are you shopping for specific types of investment or savings products?  CDs, certain bonds, stocks, mutual funds, closed-end funds, options, speculative stocks, etc.  Know whether your person offers what you want.  If you want individual municipal bonds, you probably don’t want a municipal bond mutual fund but if all your advisor offers is mutual funds, guess what you will probably get.

• If you want/need insurance then specifically ask about insurance.  If you want only investment options ensure your person will provide investments only.  Did you know some investments are “wrapped” in an insurance plan?  Do you want your investments in an insurance plan?  You’ll pay for them both.

• How does the advisor get paid?  Chances are you’ll pay by one of these three methods: a fixed up-front fee for everything, a percentage of assets under management, or commissions.  It could be a combination of the three methods.  Any one of them could be good or bad depending on your situation.

• If mutual funds are your primary investment vehicle, which fund families (mutual fund companies) does your advisor offer?  Generally speaking, offering funds from only one mutual fund family should cause additional probing on your part.  A typical mutual fund family has some good funds, mostly average funds and some bad funds.  If you are limited to one fund family…well.  Wouldn’t you rather cherry pick from the best funds of numerous families?  What’s the reason the advisor offers funds from only one fund family?

• How interested in you is your advisor?  Do they spend time getting to know you, asking numerous questions, delving into your investments, your personal expectations, your likes and dislikes?  The more they make things about you and not them and their products, the better.  They should want you to be an educated consumer.  An educated client makes the job easier for a good advisor.  There should be nothing to hide.  If keeping you in the dark is your advisor’s goal, then you should be asking yourself what is being hidden.  They should explain details and “why” they recommend certain products to your satisfaction.  You should never be unclear about what you are buying and why.  Professional advisors want their clients to be a part of the process.  Taking time is not a problem for a professional.  Sales pitches and glossing over programs is designed to push something on you.  You should willingly want to participate in the purchase not be pushed into a game plan.  Buyer’s remorse is not part of a good advisors’ plan.

It Boils Down to Trust and Integrity.  After reading the previous points, can you see why so much of the selection process rest on trust and integrity within the relationship?  Advisors can do anything to anyone and make it sound right for you.  You have to understand their agenda.  As best you can determine, you are looking for the person who cares about you first and foremost.  Then has the expertise and tools to deliver the best plan for your needs and temperament.  Because most folks don’t understand the financial world, most people put their entire trust in their advisor to make the right decision.  This opens you up to the possibility of unscrupulous sales practices.  Please get involved enough to be a participant in your financial game plan.  Know:

·         what you are in

·         why you are in it

·         what other options exist to achieve your goals

o       there are always other options

o       what makes the other options better or worse

·         whether your person has all the tools (both expertise and products) necessary to achieve your goals.  

Be an educated consumer.  Good advisors prefer it.