Monday, December 31, 2012

How to Choose an Mutual Fund

Funds that belong to the investors collected for investing in bonds, stocks and money are pooled by a mutual fund. They allow investors to diversify their holdings. Money managers operate these funds, and use them for capital investment to create income for the owners. The portfolio structure of mutual funds depends on the initial objectives of an investment.
Investors don’t require individual trades and purchases. Therefore, they are able to add bonds, securities etc. at a much lower price. Here are some tips on choosing the right mutual fund for your nest egg.

1. Select your financial institution
You’ll need to purchase mutual funds through a financial institution. Research and referrals can help you decide which institution to go for. You can also compare savings account rates if you want both savings and mutual funds account. Competitive fee structures are offered by online investment management firms, while banks and credit unions are also an option. Services of financial advisors are also available.

2. Know the risks and goals
The market can shift at any time, and you should know your risk toleration limit before making an investment decision. The goals would depend on whether you’re going for short-term or long-term investment. For your nest egg, long-term investment may be a better option. You can examine the past performance of mutual funds by looking at the statistics such as returns and see the stock index to have an idea. However, past performance doesn’t guarantee future returns.

3. Invest in different types
You can consider investing in both managed funds and index funds. Index funds come with minimum fees as they aren’t managed actively, and perform with the index. Actively managed funds have high fees are they are selected by managers who believe they’ll perform well. Diversification can be achieved by investing in both types. Avoid investing in very large mutual funds as they’re prone to lose responsiveness to market changes.

4. Keep the fees in check
There are three costs related to mutual funds; the fees on purchase, fees as a percentage of the investment and fees of mutual fund managers for the portfolio. The mutual fund turnover fee gets deducted automatically from the net asset value, and investors may not be informed about them. If your financial institution has card offers for mutual fund purchase, the fees can vary, and it’s recommended that you keep an eye on the charges.
Through these tips, you’ll be able to choose a mutual fund that suits your needs.

Friday, November 23, 2012

How to Choose Your Bank

Choosing a bank is harder than it used to be. It wasn’t so long ago that, for the most part, banks all seemed pretty much equal. Today, though, we know better. We all saw what happened during the financial crisis of 2008 and nobody wants to go through that again. It’s only natural to want to find a great bank, like one of Brian F Prince’s companies. But what if there isn’t one of those where you live? How do you choose?

The first thing you need to do when trying to choose a bank is figure out what you want and need from your bank. Do you want a small town family feel? Do you prefer corporate ambivalence? Do interest rates matter? Do you want something locally owned? Do you need a bank that will work with someone trying to rebuild their credit or financial stability? Do you have a lot of money that needs to be taken care of? Are you starting from scratch with next to nothing? How quickly do you want to grow your money? All of these questions are important and require honest answers if you want to be able to narrow down your choices even a little bit.

Make sure you check out the background of every bank that you are thinking of partnering with. There are plenty of ways that you can do this. A quick glance through the Better Business Bureau is one way. There are also lots of websites out there that are dedicated to ranking banks on a variety of criteria. Talk to other people who bank there and see what they think about it. Do a news search to find out how that particular bank handled the economic crisis. Was it one of the banks that got bought up and merged, or was it one of the banks that did the buying up?

Know what a good bank really does. A good bank is one that you can access easily—not just in terms of location but in terms of your own finances. A good bank isn’t going to charge you through the nose to use their services. Some annual fees are, sadly, par for the course these days but the fee should be reasonable. A great bank will offer you methods of offsetting those fees. For example, Wells Fargo offers free checking to anybody who uses their debit cards more than ten times in a month.

The best way to find the best bank for you is to simply start doing your research. Pay a visit to each bank you’re thinking of working with and talk to a representative there about what you need and what that bank can offer you. Pay attention to how you feel while you are there. Do you feel comfortable and safe or do you feel pressured and intimidated?

Finally: remember that, for the most part, banking isn’t permanent. You don’t have to commit the rest of your life to this institution. If one doesn’t work for you, you can simply move over to a different bank that does.

Wednesday, September 26, 2012

Rare New Boon for Investors

Lynas scores Malaysia plant license is the just the latest among a host of news regarding the mining of rare earths elements. While many investors have focused on the benefits offered by investing in gold and silver in an economy that remains anything but certain, rare earths are beginning to attract attention around the world as a possible new avenue for safe haven investing.

Rare Earths Mining Background 

Although many people may not realize it, rare earths elements play a significant role in modern industry and technology. Numerous rare earths elements can be found in a host of products modern consumers use every day. Uses of rare earths elements include everything from hybrid cars to smartphones. Despite their widespread and ever increasing use, the supply of rare earths elements has remained significantly uncertain for many years.

This has largely been due to the stronghold China has held on the rare earths mining industry for decades. Until Lynas received the temporary operating license to mine rare earths elements in Malaysia, China accounted for 95% of the production of rare earths elements in the world. Lynas has estimated it will be able to reach a 22,000 metric ton production capacity by the end of 2013.

Although the demand for rare earths elements has continued to increase during the last few years due to amplified industrial use, the supply of these essential elements has remained stagnant. In fact, China even began to reduce export quotas two years ago. Following a diplomatic dispute with Japan, the export of rare earths from China to Japan was even temporarily suspended. The continued tightening of production by China instigated increased concern in the industry and eventually led to the entrance of several mining companies, including Lynas, into the rare earths processing sector.

Increased Production Offers New Investment Opportunities 

In light of increased production, a number of investors are now beginning to view the potential of rare earths as financial tools. Gold and silver have long served as a hedge against inflation and as tools for asset protection and growth. It is now widely believed that the new investment opportunities in rare metals and earths could serve investors in the same regard. The demand for rare earths is expected to continue climbing each year as much as 12%. Investors looking for a safe haven investment opportunity could well find that rare earths elements are just the investment tool they are seeking.

Tuesday, August 28, 2012

Festival of Frugality

Welcome to a Festival of Frugality. This is a blog carnival that shares financial resources so what better place to share it than here.

Here are my favorite articles:
JP presents No. You Don't Need to Buy Life Insurance for Your Children posted at My Family Finances.

Daisy presents Planning For Homebuying posted at Add Vodka.

Miranda Marquit presents Four Extreme Lifestyle Choices That Save Money posted at Bargaineering.

Best of the rest:
A Blinkin presents The Ideal Budget for a Single Guy Age 24 posted at Funancials.
Eddie presents The Cold Hard Truth On Being a Personal Finance Blogger - What I Learned In Less Than 2 Years! posted at Finance Fox.
MR presents Is A Roth IRA One Of The Best Protection Against High Future Tax Rates? posted at Money Reasons.
Passive Income Earner presents Is RIM a Good Investment? posted at The Passive Income Earner.
Jon the Saver presents Lack of Liquidity May Be Why You Don't Feel Rich posted at Free Money Wisdom.
Jen presents Preparing Our Finances 4 Home Ownership posted at Master the Art of Saving.
Amanda L Grossman presents My Advice to a Person Budgeting for the First Time posted at Frugal Confessions.
YFS presents 2 Home Buying Tips That People Never Tell You! posted at Your Finances Simplified.
SBB presents Is Budgeting Worth Your Time? posted at Simple Budget Blog.
Miss T. presents 8 Ways to Save Money on Groceries without Coupons posted at Prairie Eco Thrifter.
Beating Broke presents Take an Off Season Fall Vacation and Save Big posted at Beating Broke.
Peter presents Spend Money to Slash Your Budget posted at Bible Money Matters.
Paul Vachon presents Deciding When to Retire posted at The Frugal Toad.
Melissa presents The Best Things to Buy at Garage Sales (and What to Skip) posted at Bargaineering.
Echo presents 35 Ways To Save Money posted at Boomer & Echo.
SB presents How to Manage financial Accounts posted at One Cent at a Time.
Rebecca presents Frugal ways to give back posted at Doggone Thrifty.
Jim presents The Best Things to Buy at Garage Sales (and What to Skip) posted at Bargaineering.
Mama Squirrel presents Funky Doll Sofa, Almost Free (Tutorial) posted at Dewey's Treehouse.

Thanks to everyone that submitted their posts. Maybe I will do this again sometime.

Thursday, August 16, 2012

Tricky Times for Baby Boomers

The Baby Boomer generation is known for their careful financial planning, frugal savings and determination to experience a relaxing retirement that is free from financial worry. However, the current financial situation has introduced new concerns regarding a boomer’s financial planning. While many people have already retired, others are just entering retirement and discovering that several common life events can suddenly pose a challenge to their financial plans
For this reason, it is important to be aware of several major life events that can cause a boomer to need to make changes in their financial strategy so that they can continue to live out their retirement in peace.

Selling a Business 

Self-employed Baby Boomers who are entering retirement must first contend with selling their business. This can be particularly tricky as the legalities of business sales are often complicated. However, legal fees are often expensive and can easily take a large chunk out of the profits that can be gained from selling a business. For this reason, boomers are encouraged to learn as much as they can about the selling process and carefully research real estate agents and lawyers before making any major decisions. Staying involved throughout the selling process is vital to emerging from a business sale with a substantial profit.

Divorce

No one ever wants to imagine that divorce can happen to them, but after the kids leave the nest many boomers are discovering that their marriage has come to an end. Splitting assets during a divorce, coupled with legal fees, can wreak havoc on a person’s retirement plans. 
For this reason, it is important to seek out the advice of people such as Walter Wisniewski Paragon Capital financial planner who have dedicated their careers to helping people to plan for their financial future. Because divorce is often an emotional time, it can be difficult for a boomer to think clearly about their financial plans. Therefore, a qualified financial planner can be an important asset to ensure that a person’s financial affairs are in order throughout the entire divorce process.

Losing a Spouse 

Divorce is not the only hardship that can occur within a person’s relationship during retirement. Baby Boomers must also face the concern of losing a spouse. When a spouse dies, grief can cloud financial judgment. If the surviving spouse was financially dependent upon their other half, then there is also the concern about how the estate will be divided. 
For this reason, boomers are encouraged to plan for their estates before a crisis has occurred. A qualified financial planner can help to ensure that a legal will has been established that will designate how possessions should be distributed in the event of the loss of a spouse.

Medical Bills and Lawsuits 

Finally, as boomers begin to make their way into retirement age, health can become a major concern. Even in the event of a minor illness or injury, medical bills can quickly skyrocket and begin to deplete a person’s savings. In order to avoid a person’s retirement funds being depleted by medical bills and lawsuits, boomers should look into purchasing the best insurance plans that they can afford. Long-term insurance plans can offer excellent packages that will ensure that unexpected problems do not become a financial burden.
While Baby Boomers have planned their entire lives for their retirement, it is possible that they may need to make a few changes to their financial plans if they experience a major life event. Because medical mishaps, divorce or the loss of a spouse could occur to anyone without warning, it is best to be prepared before they ever happen. For this reason, a qualified financial planner can be a Baby Boomer’s best ally when planning for their post-retirement financial future.

Tuesday, May 29, 2012

5 Growth Sectors Worth Investing In

One of the hardest parts of investing is finding a growth sector that you can believe in. Talk to any stock market 'specialist' and he or she will tell you about buying in early to an industry that is about to take off. The Internet and financial circles are full of tips and premonitions regarding stocks and markets that are about to fly into the stratosphere, but the truth is most of this is thinly disguised guesswork, deductions based on smatterings of evidence and hearsay. Sometimes the best investing guide is to look at macroscopic trends in society, over-arcing patterns that are effecting the economy in multiple ways. What industries are actually growing and what factors are there that could impede this growth? If you can find no logical roadblock to stop an industry that's growing by leaps and bounds, it could make for a lucrative investment. That's why the following industries are considered by many to be extremely promising growth sectors: Life sciences The advances in the life sciences field have been nothing short of remarkable in recent years. Improved micro-arrays have increased our ability to study the human genome and fashion new pharmaceuticals. So has microfluidics and gene therapy. Biotechnology applications have also used artificial selection and hybridization in order to improve the domestication of animals and the cultivation of plants. The growth of life sciences has seen the evolution of findings that used to be contained in Ivory Towers leak down to have extremely valuable real-world applications in everything from agriculture to health care. The government has even invested in life sciences in order to ramp up its efforts to protect against bioterrorism. As advances continue to be made in the pharmaceutical, biotechnology, agrochemical and industrial chemical fields entrepreneurs who make a considerable life sciences investment are likely to see good to great returns if they are prudent and look for smart value plays. Green engineering Green engineering jobs are expected to see meteoric growth in the coming years as more and more homeowners and businesses renovate and upgrade their houses and office buildings in order to be more energy-efficient. Alternative energy is also expected to be a major growth sector, but picking out specific companies in this field will be a harder to do because of the political uncertainties inherent in the industry. On the other hand, green engineering projects don't require an entirely new infrastructure and are likely to be heavily invested in by both private firms and federal agencies because of their ability to both produce jobs and save money. Additionally, new regulations mandating certain CO2 emission levels will force many businesses to commission new installations. Many engineering education programs are now focusing intensely on green engineering, attempting to train a new generation of engineers to take seriously the challenge of energy efficiency and sustainable city planning. Digital information You don't have to look far to see the wide-ranging impact of digital information technology. Smartphones, high-speed Internet, GPS, and cloud services are now taking over our professional landscapes, changing the way businesses operate and the way people communicate with each other. It's no longer necessary for some colleagues to even be in the same room in order to have business meetings anymore; students can earn their degrees remotely; investors can organize their portfolios and move their money around while in transit. While a long term investment may be difficult in the digital information field—due to its ever-changing nature—short term goals could reap a significant harvest. Augmented reality, VoiP services, open source online education tools, and place-based messaging apps are all popular right now and are expected to grow in the near future. In particular, mobile Internet use is expected to continue to flourish, adding to the lure of companies who are building up 4G LTE network connections and other high-speed broadband systems. Clean technology Clean technology has seen a considerable uptick in funding since President Barack Obama was elected and we can expect that trend to continue if is he is reelected. Even before Obama was elected, the clean tech train was in motion. In 2007, $148 billion was invested in clean technology. This includes federal subsidies for renewable energy, information technology, green transportation, electric motors, and a wide range of projects attempting to reduce environmental pollution. By 2018, biofuels, wind power and solar photovoltaics will be $325+ billion dollar industries, making it one of the more promising fields for venture capitalists. Clean technology stocks in China and India have grown steadily for years now because of considerably federal investments. If similar efforts are made here, it is possible that clean technology could become one of the most promising investments on the market. Advanced technology Advanced technology is generally defined as the use of innovative technology to upgrade or improve a product or commercial process. In recent years this has included advances in computer technologies, high performance computing, high precision technologies, robotics, automation control systems, sustainable technologies, and new industrial technologies. Advanced technology can be hard to pin down, which at first could make it an unattractive investment. But the government, including the White House, has been enthusiastic about this field. Obama even put forth a $1 billion dollar proposal for the National Network for Manufacturing Innovation, which would create a network of institutes all across the country working on advanced manufacturing projects. The President has also recently submitted a budget for the National Institute of Standards and Technology that would significantly increase funding for the research facilities working on these projects. While no investor can be 100% certain that a particular company's stock will rise exponentially, following the trends in a particular growth sector can be a worthwhile strategy. It will also be necessary to track a company's financials over the course of many seasons, assessing the way it adapts to change. It may behoove you to invest in a mutual fund, which encompasses a wide-ranging portfolio of stocks in a certain industry. Therefore, your money is not dependent on the performance of any one company, but rather the overall growth of a network of technologies and processes. A mutual fund in any of the preceding industries would be highly likely to accrue value over the course of time and is much safer than buying a single stock. But this requires the investor being able to keep the money in the market over many years, possibly even a decade or more. If you're looking for short-term earnings, you will have to wing it like the rest of us. But at least you'll be starting in a verdant field that is primed for growth.

Thursday, May 24, 2012

Talking with Danielle Rodabaugh on How Sureties Work with the Financial Industry

We're shifting to the mortgage industry today, a topic I've covered here and there over the last 2 years. After having some neighbors of mine go through problems with their mortgage provider, I reached out to Danielle Rodabaugh, a journalist / surety expert who covers the industry. My question to her: "How does your industry deal with mortgage brokers and companies that act illegally? How does the surety protect the consumer?" Here's what she laid out for me, posted here in full. Thanks Danielle!

How to make a claim on mortgage professional's surety bond

Countless instances of unethical lending practices in the past decade have motivated government agencies to strengthen mortgage industry regulations across the country. A crucial aspect of the crackdown has been stricter surety bond requirements for mortgage professionals. If a bonded mortgage originator, broker or lender performs dishonestly when helping clients with their mortgages, injured parties might qualify for reparation paid out from professionals surety bond funds. Those who are adversely affected by a violation of the professional's performance can make a claim against the bond. This includes consumers, third-party providers and state authorities in charge of mortgage industry licensing. When it comes to the mortgage industry, the surety claims process varies greatly depending on
       
  • the obligations outlined in the bond
  •    
  • the jurisdiction in which the bond is active
  •    
  • the parties bound to the contract's terms
To collect reparation, though, the injured party must make a valid claim against the professional's surety bond. To do so, injured parities should follow these three steps.

1. Verify that the mortgage professional actually violated the bond's terms.

If you believe a licensed mortgage professional you've been working with has violated industry regulations, you might be able to gain reparation. For a valid claim to be made against a bond, however, the mortgage professional must have violated its terms.  Some problematic practices that could result in a claim against a mortgage professional's bond include:
       
  • intentionally targeting vulnerable or at-risk borrowers
  •    
  • pressuring clients to buy certain loan products such as high-risk loans or loans with higher interest rates
  •    
  • basing clients' interest rates on anything other than credit history
  •    
  • approving clients for loans they cannot afford to repay
  •    
  • charging clients unnecessary or additional fees
  •    
  • encouraging clients to use fraud when applying for a mortgage
Before you try to make a claim against a surety bond, you or your lawyer should verify whether the mortgage professional actually broke the bond's terms.

2. Get in touch with your attorney.

A number of legal issues could arise during your attempt to make a claim on a bond. The best way to handle potential problems is to get in touch with your lawyer right away and explain the situation. Not to mention the fact that mitigation is typically handled better with the help of a lawyer. You should always discuss your claim with an attorney before taking legal action because, unfortunately,  the amount you'll be able to collect might not be worth the time, money and effort that will be required to make a successful claim.

3. Contact the mortgage professional's surety.

Effective communication is crucial when trying to make a claim against a bond. To find out who the surety is, contact whatever state agency regulates mortgage professionals. The department can provide you with the name of the licensed mortgage professional's surety bond provider. Then contact the surety underwriter and follow its required procedures to make your claim. Oftentimes surety underwriters have personnel that deal exclusively with the claims process. Bond claims against mortgage surety bonds must typically be filed within one year of the date of the act that causes the claim. The duration of the surety bond claims process varies among underwriters. The surety underwriter will have to verify the claim is valid before paying reparation to injured parties. Sometimes mortgage bond language requires a court ruling against the principal for a claim to be considered valid. Whether or not you have to take legal action against the mortgage professional to gain reparation depends on the bond's contractual language. Too many people have learned the hard way that the housing market and mortgage industry can be extremely risky to get involved with. Armed with an understanding of surety bonds, however, current and future homeowners can protect future investments from fraudulent mortgage professionals.

. . . A little more about Danielle: Danielle Rodabaugh is the chief editor for SuretyBonds.com, a nationwide surety bond producer. As a part of the company's educational outreach program, Danielle writes about mortgage industry developments since they're often intertwined with the surety market.

Monday, April 09, 2012

Choosing the Right Bank to Manage Your Business Finances

Banks and businesses are invariably connected. When businesses earn money, owners store their earnings in the bank. Owners can also borrow money from banks in order to start a business or to prevent its downfall. Hence, banks and businesses rely on each other for survival, but how can you be sure that this partnership is not detrimental to your business and lead you to success instead? One of the determinants of the success of a business is its good partnership with its bank so, you need to carefully choose the bank that is suited for your business needs.

Hundreds of banks may be present in your area but only a few can offer the services you need. When starting a business, the common notion of business owners is to go to the large banks immediately. While large banks have all the resources to support your business, they may charge higher fees for that. Business owners can always go to community banks where card and ATM fees are not that high.

In addition, some large banks charge monthly maintenance fees and these fees, when summed up, can amount to significant loss in your profit. Always be vigilant about extra fees and if you are unsure why your bank charges you with such fees, you should not hesitate to ask them about it. You can also opt for a type of account that incurs little or no fees.
If you are looking to borrow money, check whether the bank is capable of granting it to you.

Smaller banks or internet banks may not have the resources to help you out on big loans such as larger banking institutions could, but they are more likely to offer your customized services which can be highly beneficial. But, this does not mean that your loans will be immediately approved since they will have to consider your business credit. Larger banks often apply the formulaic approach when deciding on which loans to approve since reviewing the local market where your business operates is not feasible for them. Smaller community banks, on the other hand, can review your credentials to determine the financial state of your business.

Also, check the quality of their services and offerings. The bank manager must always be ready to respond to your queries and give you full assistance on your needs. Every business is unique in its own way so personalized services that can cater to your specific needs would be very great features. Tools and other products that can help you manage your finances, interest rates, foreign exchange transactions are likewise valuable.

Friday, April 06, 2012

US Census Infographic

Interesting infographic on the US Census comparing 1940 with 2010. It is amazing how much can change in 80 years.

Thursday, March 22, 2012

Prepaid Cards On The Rise

Traditionally, prepaid cards have been used by people without bank accounts (which describes one in five Americans) and federal agencies giving out benefits. But prepaid cards are one of the newest financial trends, with use of them rising 68% from 2010 to 2011, making them the fastest growing payment method in the nation. And it's not just lower-income sections of the populace using them now. Many middle to upper class consumers are looking at pre-paid cards as a way to ensure they don't trudge in the murky waters of debt. They're also frequently being used to fund students studying abroad.

Many issuers are looking to incentivize consumers to utilize prepaid cards by eliminating overdraft fees, as is the case with the Green Dot prepaid card. Green Dot, which has more than 4.3 million cards in circulation, receives a large amount of its new customers from ex-bank account holders at their wit's end. Indeed, many consumers are also looking at prepaid cards as a welcome respite from the exorbitant fees being charged by banks, although ironically more and more banks are relying on prepaid cards to generate extra revenue.

Accordingly, many issuers have also eliminated maintenance, reloading and activation fees, which have all been traditional caveats to prepaid plastic. While the cards can't help you to build financial leverage with a credit bureau, as is the typical draw of a credit or debit card, some people are looking at them as a small step toward financial responsibility, as they essentially force you to limit your own spending ability beforehand.

Prepaid card funds are insured by the FDIC, just like other payment methods, but do not run up the traditional interest of a credit card. This may be one of the catalysts for the swarm of consumers looking to purchase them. In 2011, $70 billion dollar was placed onto prepaid cards. That number is expected to hit $120 billion, nearly double, this year. What's the message here? Well, there's probably a few. One is that the economy is still weak, and consumers are reluctant to accrue more debt on a credit card. Another message is that merchants should make sure their credit card processing systems are configured to transact purchases from prepaid cards or risk losing some major business—approximately, their slice of a $100 billion dollar pie.

Perhaps the third and most important message to be gleaned from the rise of prepaid cards is that Americans may finally be starting to think about lessening debt, although only time will tell how serious we are about rising to that challenge.  

Thursday, March 08, 2012

Big Banks, Smaller and Smaller Loans

There is great debate over how big of role of big banks have in spurring economic growth with small business loans. Some analysts argue they're doing enough, while others point to the hefty federal bailouts the nation's biggest banks have received and ask why more of that money isn't being flushed back into the system in order to create job growth and healthy small businesses. We can list some facts, but must keep in mind that facts bend and can be used by virtually anyone to prove a point. First, let's define what constitutes a small business. On a purely financial basis, small businesses or usually thought of as businesses with a revenue of $20 million of less. These businesses depend on banks for loans so they can expand their services and infrastructure and invest in new business models, like e-commerce, cloud services, and virtualization. Without loans, most small businesses can't grow into big businesses.

Unfortunately, recent numbers released by the FDIC paint a dismal picture of the role big banks play in supplying money to small businesses. The top 5 banks in America—Bank of America, J.P. Morgan Chase, Citigroup, Wells Fargo, and Goldman Sachs—only contributed 16% of the nation's small business loans, even after these same banks took in a combined $151.59 billion in TARP bailout funds and sit on 40% of the nation's deposits. As a result of these poor loan figures, many small business owners who need loans are not even requesting them. Many financial analysts feel this is not the kind of entrepreneurial atmosphere that will trigger economic growth.  

On the other hand, one can also look at these numbers as signs that financial institutions are practicing more stringent oversight. We've seen what can happen when millions of loans are issued to people who can't repay them. This resulted in the crash of the housing market that contributed greatly to our economic stagnation. While small businesses originally benefited from this inflated consumer confidence, they are now suffering from an epidemic of stingy lenders. Is it that the big banks are trying to prevent a similar crisis from delinquent small business owners by encouraging better credit and more responsible loan delegation? Or do we have reason to think that the institutions who have been deemed “too big to fail” don't feel the same way about America's collective entrepreneurial spirit? After all, if banks are too big to fail, so are the people who invest their money in them.

Tuesday, March 06, 2012

The "Buffett" Rule

Warren Buffett, the billionaire magnate, investor and philanthropist, has been getting a lot of face time in the news these past couple years. He made waves all across the media with his assertion, in a New York Times op-ed, that the super-rich in America were getting “coddled” and should be expected to pay more in taxes. Famously claiming that he wanted to pay more in taxes, Buffett has been a strong adversary to the Bush-era tax breaks for rich people and corporations, calling for higher rates on investments.

President Barack Obama's 2013 budget proposal will pay tribute to Buffett with something called the “Buffett” rule, which will replace the alternative minimum tax that was originally established for the purpose of limiting the deductions rich taxpayers could use to reduce their taxable income. The rule calls for a tax increase of $1.5 trillion over the next decade (around $36.7 billion a year) in a plan that will effectively end the Bush era tax cuts and mandate anyone earning more than $1 million a year to pay 30% in income taxes.

In what will almost assuredly result in a fiery election year showdown with Republicans, Obama's proposal specifically calls for a reduction in tax breaks to the wealthiest Americans and U.S.-based multinational corporations. In his budget message, Obama said that Americans earning “$50,000 a year should not pay taxes at a higher rate than somebody making $50 million.”

Opponents of the plan say it will cause investors to dial down their spending, which will effectively stifle innovation and business growth. Most of these critics want deficit reduction to come from a reduction in funding for “entitlement” programs like Medicare, Medicaid and Social Security. The major points of contention revolve around the marginal tax rate, or tax bracket, which affects how much someone will be paying in taxes after deductions and credits.

Theoretically, an investor such as Warren Buffet is currently protected from a top 35% rate by the accumulation of capital gains, dividends, and other forms of interest enjoyed by hedge fund managers. This “carried interest,” as it is called, essentially amounts to untaxed investment funds paid to managers by private equity. This is also known as a “performance fee,” from which most wealthy investors receive a great deal of their annual income. Fiscal conservatives don't consider performance fees to be entitlements.

We can expect a mighty congressional showdown later this year over the “Buffett” rule. In the meantime, we'll be treated to more rhetoric and number-crunching by politicos attempting to wrangle the facts of the tax code to fit their ideologies.

Monday, February 20, 2012

Even With New Greek Debt Deal, Europe Faces Long Road Ahead

It sometimes seems as though every day we are treated to a new twist or turn in the roller coaster that is the European debt crisis. While it appears as though the worst is passed, that the Euro is safe and that the EU powerhouses will finally pull the continent through the economic downturn, news from Europe continues to put a wrench into any rosy forecasts. Most recently, negotiators in Greece agreed to severe austerity measures in exchange for a 130 billion Euro bailout package from the IMF and the EU. This is the good news. The bad news is what came after the deal was announced – a widespread uproar and infighting among Greece’s political order, and calls for yet another 2-day strike by the country’s angry citizens.
While such a reaction was not unexpected, the situation nonetheless calls Greece’s bailout hopes and stabilization prospects into question once again. In order to implement the EU deal, Greek Prime Minister Lucas Papademos will likely need to restructure his cabinet, a move that could spell a collapse for the unity government and another round of elections. Of course, Papademos will also have to address the turmoil in the streets and the grinding halt in the workforce if he wants to assure government ministers to vote for the austerity measures in the face of widespread opposition. The measures include pension cuts, minimum wage reductions, widespread layoffs, and collective bargaining impairments. Although they are still demanding over $400 million more in cuts in the long term, eurozone finance ministers sent global stock markets higher by agreeing to the measures in principle.

Greece has a debt that stands at 160 percent of its GDP. Its unemployment rate, meanwhile, hovers somewhere between 20 and 25 percent. European leaders want to see both of these numbers substantially slashed.

Even if Greece can get austerity cuts passed and make turn a bailout package into reality, a few larger questions looms on the horizon. Will the Eurozone recover? Can the continent handle another debt crisis? Considering the rapid pace at which government debt is rising relative to GDP in several countries – chief among them Spain, Portugal, and Ireland – it’s not inconceivable that the Greek debt crisis will quickly give way to a Spanish and Irish incarnation. Will those countries be able to successfully implement austerity measures without threatening political and social disorder? It’s a question that few European finance minister are willing to ask but one that many have probably considered.

All signs suggest that Greece is not the final roadblock in the EU’s effort to emerge from the financial turndown. It is likely that future bailouts and austerity plans are in the future for several other countries. While Greece may have shouldered most of the burden this time around, there’s little doubt that, the longer this issue persists and the more widespread it becomes, the more likely all of Europe is to descend into a period of mid-term stagnation. Furthermore, many analysts predict that large-scale austerity measures will only initiate a negative feedback loop that stifles recovery and pushes Europe further into a new recession.

In Europe, recovery and growth will both depend highly on the power of state resources. Too much austerity, and growth will be difficult to spark. Too little, and spiraling debt will only further exacerbate budgets and markets. In order to move forward, then, as a strong and unified continent, Europe needs to forge an appropriate path between the two – in Greece as well as in Spain, Portugal, and Ireland. Until that happens the global economy will continue to feel its reverberations.

Monday, February 13, 2012

How to Maintain Your Credit Score

Whether you're buying a vacation home or just buying a fun retirement car to roll around town in, you've probably picked up that your credit score has become one of the most important numbers in your life. While you probably aren't going to be taking out 30 year fixed loans, sometimes you want to pay for part of your large purchase with a loan so you can keep that hard earned cash on hand. Having a good credit score is paramount.
First, what is a good credit score range? According to Fair Isaac Corporation, originatore of the FICO score, anything above 760 is fantastic. Anything above 700 is great. If your score is lower, you might want to improve it before taking out any large loans.
In retirement, chances are you can do little to affect your credit history. Whatever you've done, good or bad, has been done and has marinated in your credit report. There are, however, still some things you can do to affect positive change.
Check your credit reports for errors. Errors and omissions on your report are not uncommon, so use AnnualCreditReport.com to review your credit reports. The most common credit report errors are erroneous accounts, inaccurate personal information, outdated information, and improper collections and chargeoffs.
Keep inquiries to a minimum. Anytime you apply for a card, the company makes a hard inquiry of your credit report and it'll cost you a few points. If you plan on taking out a loan, avoid this at all costs.
Keep making payments on time. If you have any outstanding debt, like credit cards or a mortgage, just keep making payments on time. Missing a payment will hurt your wallet, in fees, and your score, in a late payment record.

Keeping your credit score high, especially if you have a nice long history of good behavior, should be fairly easy. You can knock out some of the low hanging fruit by disputing errors on your credit report but otherwise just keep doing the right thing and you'll do fine.