Whenever you see or read comments from analysts or economists that work directly on Wall Street, the vast majority say the stock market is going up. These people are from the "Sell Side" of the industry meaning they sell products. So, they have an incentive to say stocks are going up because they make more money when they do.
Recently, with each additional 5% decline in stocks, I kept hearing, "It's time to buy. Stocks are undervalued. Get in now." These are the same people who said the exact same thing in 2007 through 2008. If you followed their advice you would have lost a bunch of money.
Avoid listening to these "Sell Side" sales people and get unbiased advice on where to invest your money.
Thursday, July 1, 2010
Thursday, May 20, 2010
Structured Notes
One of the more popular products to come out of financial institutions over the past 4 years is Structured Notes. These products are underwritten by a financial company like Merrill Lynch, J.P. Morgan, etc. and their performance is tied to market index. Depending on the note, they can provide principal protection, multiples of the index performance either up or down, or guaranteed returns.
There are many downsides to these instruments but the least talked about negative is the fact that the brokers selling them get paid twice. Say you have a broker who comes to you with an S&P 500 3x's upside capped at 20% over 5 years. You buy the note for $100,000. The broker receives a 2% up-front fee. Then, say the same broker has you in a fee based account charging 1.5% a year, you pay 1.5% again on the $100,000 for a total of $3,500 of fees in the first year. Each year there after you still pay the annual fee.
You never see the 2% commission because it is taken off the top of the note not to mention fees charged by the issuing financial institution. So, if you earn 10%, the note actually earned 12% or more. When I worked at one of the big wirehouse brokers, they were pushing brokers to sell these as much as possible so they can earn the 2% "kicker" as they called it.
Also, keep in mind, that structured notes are only as good as the institution underwriting them. The issuer must have sound financial backing and risk controls in place.
There are many downsides to these instruments but the least talked about negative is the fact that the brokers selling them get paid twice. Say you have a broker who comes to you with an S&P 500 3x's upside capped at 20% over 5 years. You buy the note for $100,000. The broker receives a 2% up-front fee. Then, say the same broker has you in a fee based account charging 1.5% a year, you pay 1.5% again on the $100,000 for a total of $3,500 of fees in the first year. Each year there after you still pay the annual fee.
You never see the 2% commission because it is taken off the top of the note not to mention fees charged by the issuing financial institution. So, if you earn 10%, the note actually earned 12% or more. When I worked at one of the big wirehouse brokers, they were pushing brokers to sell these as much as possible so they can earn the 2% "kicker" as they called it.
Also, keep in mind, that structured notes are only as good as the institution underwriting them. The issuer must have sound financial backing and risk controls in place.
Wednesday, March 31, 2010
Investing for Long Haul
Here is something I read recently in a financial planning publication that has stuck in my mind:
"The greatest risk is allocating a portfolio in such a way that it avoids fluctuation but guarantees a return so low it assures the clients money will not last."
Lets spell this out. The money you are saving, that is money that is going to be spent at some point. To make sure you always have enough money, you need to invest it in a way that your account grows by more than what you take out. One of the strategies that has worked in the past is to put good a portion of your money in stocks. Owning stocks can be scary for some people because they don't like to loose money. However, over the last 84 years, stocks made money in 70% of them. The number of years where stocks lost money is 30%. Those are pretty good odds in your favor.
Investing is one of the great opportunities for all people in our society. Its open to everyone and it is a way for people to rise above their current circumstances, better themselves and grow wealth.
The question is what are you going to do with your money? Are you going to be so scared that you keep all your money in cash and CD's that earn a pittance and forces you to set your standards low. Or, are you going to take advantage this great opportunity to grow the amount of money you have in order to live and do what you want.
There are ways to invest your money that limit risk but still enable you to grow your money at rates better than CD's. Financial advisors, like myself, can help you figure out an investment strategy that meets your needs and goals.
"The greatest risk is allocating a portfolio in such a way that it avoids fluctuation but guarantees a return so low it assures the clients money will not last."
Lets spell this out. The money you are saving, that is money that is going to be spent at some point. To make sure you always have enough money, you need to invest it in a way that your account grows by more than what you take out. One of the strategies that has worked in the past is to put good a portion of your money in stocks. Owning stocks can be scary for some people because they don't like to loose money. However, over the last 84 years, stocks made money in 70% of them. The number of years where stocks lost money is 30%. Those are pretty good odds in your favor.
Investing is one of the great opportunities for all people in our society. Its open to everyone and it is a way for people to rise above their current circumstances, better themselves and grow wealth.
The question is what are you going to do with your money? Are you going to be so scared that you keep all your money in cash and CD's that earn a pittance and forces you to set your standards low. Or, are you going to take advantage this great opportunity to grow the amount of money you have in order to live and do what you want.
There are ways to invest your money that limit risk but still enable you to grow your money at rates better than CD's. Financial advisors, like myself, can help you figure out an investment strategy that meets your needs and goals.
Friday, February 5, 2010
2010 Retirement Contribution Limits
IRA, traditional and Roth
Under age 50__________________ $5,000
Age 50 and older_______________ $6,000
401(k), 403(b) and 457 plans
Under age 50___________________ $16,500
Age 50 and older________________ $22,000
SIMPLE plans
Under age 50____________________ $11,500
Age 50 and older_________________ $14,000
Social Security Wage Base________ $106,800
Under age 50__________________ $5,000
Age 50 and older_______________ $6,000
401(k), 403(b) and 457 plans
Under age 50___________________ $16,500
Age 50 and older________________ $22,000
SIMPLE plans
Under age 50____________________ $11,500
Age 50 and older_________________ $14,000
Social Security Wage Base________ $106,800
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