Faq's

The $100,000 modified adjusted gross income limit that currently applies to conversions is scheduled to permanently disappear on the first day of 2010, and a favorable tax reporting treatment applies to conversions made at any time in 2010.

However, not knowing if you are married or how old you are, there are variables to consider.  If you have not applied for Social Security yet, and if you have assets that can support you if you delay taking SS income, you are likely to receive more lifetime income by delaying your SS option. If you are married, your widow’s income and inflation adjustments will be based on your initial year of taking Social Security. The later you do that, the larger your income and hers.  Depending on her age, that can make a large difference in her security as a widow. 
 
Converting to a ROTH would likely mean you can’t use that asset to delay receipt of SS income. There are planning calculators on the www.SSA.gov website. We can also help you with planning different scenarios.

fi•du•ci•ar•y – A Financial Advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the Financial Advisor is required to act with undivided loyalty to the client. This includes disclosure of how the Financial Advisor is to be compensated and any corresponding conflicts of interest.

In every client relationship, we acknowledge our role as a fiduciary. No employee is allowed to have any agency agreement with any company that would generate any type of commission. Even when we refer people to other advisors, we receive no compensation for the referral.

Yes. If you have been getting “free advice,” you need to know it has not been free. You just have not been told exactly how much your advisor was being paid or for what service.

If you want an advisor to act on your behalf, with a legal duty to place your interests first, you must hire an advisor who is registered with the Securities Exchange Commission or with your state’s security department as an investment advisor. 

You must pay them as you would if you were hiring an attorney, an accountant or a real estate appraiser. You will know exactly what you are paying, for what and will be able to evaluate what was delivered in the way of services for your fees. When your advisor is contracted as a fiduciary, you get disclosure and duty. That should give you peace of mind.

If your advisor is paid indirectly by deducting commissions from your investment dollars, then the Law of Agency is clear. The advisor's fiduciary duty is to the firm that wrote the check. Your investment may have made the commission possible but it did not create an obligation for the advisor to shift duty from his firm to you.

No. Your broker can charge you a percentage fee that appears to be a fee for advice because of the so-called Merrill Lynch Rule. That rule exists because Merrill Lynch asked the SEC for an exemption from all of the rules affecting investment advisers. Merrill wanted to charge fees to look like an adviser, but did not want to disclose all of their mark-ups, internal fees and other sources of income or disclose conflicts of interest with you, the investor. 

If you read the small, light print on the back of your statement, you will find that the “fee” is really a renaming of commission. They are not giving you advice. They do not have a duty to disclose conflicts of interest. They do not have a duty to get you best execution. Your “adviser” is legally a broker representing the firm per the terms of his employment contract. You do not have any agreement in writing that hires him or her as your personal representative. If you did, then you would have a person required to be registered as an investment adviser with either the state or federal securities regulators.

In 2007, the SEC lost a court battle and had to rescind the Merrill Rule exemption. If you are currently working with a brokerage firm under this type of fee arrangement, expect it to change soon. "The New Deal" will look a lot like the old world of commissions for transactions.

First, you can ask if the advisor will act as a fiduciary in all of your dealings and will put it in writing. The only acceptable answer is Yes.

Next, you can ask the advisor how may sources of practice or professional income he or she has other than direct client fees. The answer should be None. If there are other sources, you need to know what they are and how they may influence recommendations made to you. You have to be confident that any other duty that the advisor has will not taint the advice you are seeking.

An easy way to do this is to use the Fiduciary Questionnaire that you can download from NAPFA. www.focusonfiduciary.com/Fiduciary_Questionnaire.pdf

Not according to the Law of Agency. He is paid by commissions. Those commissions come from his employer. True, you may have put up money for a transaction, but you did not have a contract to pay your advisor for handling the transaction. The advisor is an agent of the broker-dealer, not you!

When you buy a car from a car dealer, you know the rules of the game. As soon as you walk onto the car lot, the salesman’s job is to convert your assets into his commission. When your investment person is being paid by commission, the rules of the game are the same!

That does not mean that you will get bad advice or walk away with something that won't meet your needs. It does mean that you need to verify for yourself that the recommendations are really in your best interests.

That depends on how much responsibility you want to retain for verifying recommendations and how easily you achieve peace of mind. An advisor who will contract with you in writing that work for you will be completed as a fiduciary must always put your interests first and with full disclosure.

An advisor who does not confirm a fiduciary duty probably has compensation sources in addition to what you are paying in fees. When that happens, the advisor is actually an agent of the other party and cannot be a fiduciary with you.

That means you may get suitable recommendations, but those are not necessarily the best recommendations that the advisor could make for your situation.

Our work coaches you through your own assumptions. You may not have thought about your economic assumptions, but they are built into your portfolio and retirement plan.

We give you an alternative way to make decisions and possible portfolio strategies that can be adapted to demographically driven, forecastable demands.

Consider the research paper out of the University of California by DellaVigna and Pollet. In part it concluded,

“Taken as a whole, the evidence suggests that changes in age structure of the population have the power to influence consumption demand in a substantial and consistent manner. Demographic Trends forecast above average returns for industries that are favored by age-consumption data. Investors do not take advantage of this.”

“What people THINK happens is the Efficient Market Hypothesis. What really DOES happen is Inefficient distribution, understanding, or comprehension of important data.”

“Demographic Trends forecast above average returns for industries that are favored by age-consumption data.”

“Investors do not take advantage of this.”

REMEMBER, that your retirement is the only thing you have to risk by ignoring demographic assumptions. Do you want to take that risk?

Yes and no. The taxes you are not paying are capital gain taxes. They may be as low as 5% but no higher than 15% until 2011 gets here and the old law with higher taxes goes into effect again. Not paying taxes has skewed many portfolios into unacceptable risk positions. If investors only took the time to analyze their assumptions, paying the lowest tax in their lifetime may be a real benefit both for their long-term retirement and for their portfolio. 

Many investors have potential exposure to the Alternative Minimum Tax. In this case, tax planning and "loss harvesting" are important strategies.

In the end, you have to ask yourself if you are better off paying the tax or exposing yourself to higher than acceptable risk or possibly enduring a bear market.

You have to have much more defensive strategy. If you have become emotionally married to your portfolio and refuse to adapt to the “Lack of Consumer Economy,” your entire retirement plan may be decimated very quickly. Paying capital gains taxes may well be less painful than a long-term bear market.

Most investors today did not have money in the stock market in the late 60's or through the 70's. From peak to trough, the Dow Jones Industrial Average lost 60% of its inflation adjusted value. The S&P-500 lost 50% of its inflation adjusted value.

Successful portfolio strategies in that type of market were not constrained by today's strategic asset allocation models. Active portfolio realignment with a willingness to sell profitable positions and abandon disappointments early was essential for success.

As our consumer economy shifts to a retirement saving and conserving economy, defensive investing mixed with patience for opportunity rising will be needed as we scrutinize global markets.

You certainly can. We just believe that you will regret the decision in short order. When Asia is caught with too much inventory for the U.S., their markets, being more volatile, will decline, too. The decline in market values overseas may well be much more severe than anything we have seen since the 80’s melt down. However, they should recover within a few years because of younger populations with children rapidly approaching their teens. You have to watch and wait for the opportunities that will eventually open up and present you with bargain prices.

Demographics in the industrialized free world are a valuable tool. While America's major population of consumers is declining, other countries’ populations of consumers are rising. Opportunities will be created in places outside of the United States.

There are other factors to consider. You must look a countries with a growing teenage population where economic freedom is growing. There must be an established or growing middle class so the country's wealth is not controlled by a few elite households. You must have markets that have good financial records laws and respect for international trade law.

PS. Those last conditions make China a very risky place to be. More so if global capital markets are struggling anyway.

1st, you do need to change your earnings assumptions for your portfolio and retirement plan to be more in line with changing economic conditions rather than just using a historic average or a simple rate of return. 

Most portfolio and retirement models use historic average rates of return to estimate your future results. You need some alternate scenarios with bear market assumptions. From the late 1800s and throughout the 1900s, the U.S. stock market ran through cycles of approximately 40 years. The cycles break out into roughly 26 good years and 14 tough years. Our current bull market began in August of 1982. Without looking for cause and effect, our 26 year period should end in late 2008 or 2009.

When looking for the cause and effect, we have found good reason to believe the increase or decrease in teenage  populations are closely tied to the cyclical turning points. Teenagers are the most expensive parts of anyone's household. They eat everything in site. They demand more than the folks can typically afford and they contribute next to nothing to the household's financial well being. From 2011 to 2024, our country has a declining teenage population. While that may make for less noise at home, it, also, means mom and dad will be spending less money. Lots of moms & dads will be doing this and corporate America will be struggling to maintain profits. 

Ignoring this scenario to make it easier to retire, simply leaves the door open for your retirement plan to fall apart early. You are better off to consider the possibility and to be prepared.

Dr. Siegel is a smart academic. I don’t disagree with his conclusion, only the catalyst. He postulates an increasing number of sellers will drive the market down. I agree with that possibility. If you have an excess of sellers in any market, prices decline.

However, before that happens, corporate America is going to be subject to lower profits from continually declining consumer spending in the next decade. That will happen before the all the Boomers get to retire. When you have continually lower profits you get a very tough stock market.

First, the average American couple marries at 26 and typically has their first child 2 years later. Fourteen years later, medical research has confirmed that the teenager is going through its highest calorie consuming year of growth. And potato chip sales peak in the household at that same time. Household spending on salty snacks begins a continually decreasing trend through the rest of the parents’ lifetime.

2nd, the most extreme spending peak occurs on an absolutely discretionary item right after the kids are out of the house. And you know what it is…Big Bikes. BIG motorcycles are bought primarily by people between 45 and 50 years of age.

There is a finite number of 45 to 50 year-olds in the US at any given time. Most importantly, there is nothing you can do to keep the number of people in that age group from declining between 2011 and 2024.

Harley Davidson has been a great stock and benefited from Baby Boomers entering their late 40’s. It is not unreasonable to assume that after 2011, Harley Davidson and their competitors are going to be in a fight for market share and some of them for outright survival. 

Harley Davidson representatives confessed to their concern over this coming change in a Wall Street Journal article in January of 2007. They know their sales will decline steeply after 2010. They have not yet figured out how to avoid the profit "blood-letting."

Watch for the quarter over quarter change in consumer spending to become negative. When that happens, you can assume that the Leading and Trailing Edges of the Baby Boomers have reached the “Pinch Point” - the "very disturbing" time that Alan Greenspan referred to in Congressional testimony in 2004.

Then, it will be extremely important that your retirement planning assumptions allow for a significant and lasting recession and a corresponding decline in the stock market.

We can’t answer that. However, the warnings have been in the public domain. For instance, consider:

"We will run into fairly serious difficulty in the next decade, say 2011 and forward, as the very large increase in baby boomer retirees will leave the labor force and join retirement. The numbers I find are very disturbing"

- Alan Greenspan, Congressional Testimony - June 15, 2004

Department of Labor consumer spending data now cover 25 years. That is a meaningful data set. An increasing number of academics, researchers and managers are writing about demographics and economic trends.

The aging of the Baby Boomers has been getting a lot more attention in the news because of their aging. Picture it like this. The first Boomers were born in 1946. Consider their retirement. They will turn at 65 in 2011. Retirees do no spend as much money as when they had children at home, and they generally spend less each subsequent year until health care issues catch up with them. 

The last year of Boomers was 1964. On average, their kids are through with school and leave home when the parents are 47. From that point on, Mom and Dad reduce their household spending to save for retirement. Add 1964 and 47 years. You end up at 2011. That means the leading edge of Boomers and the trailing end will both change their big consumer spending spree that has given us a quarter century of good economic times within the next few years. You can only conclude that consumer spending will shrink radically, beginning somewhere between 2008 and 2011.

The US has great mortality information. Insurance companies and the census bureau can tell us how many people are in the economy at each age group.

If we track the age groups and their total household spending which peaks around 47-48 as kids finish college, we can anticipate spending demand in various industries years in advance.

Harry Dent has been writing about this for many years. www.hsdent.com or www.amazon.com/s/ref=nb_ss_gw/104-4902499-6016765

It doesn't. Consumer sentiment is an emotional response to a family's exposure to current events. It does not represent their consumer SPENDING. You can track the spending data on the Department of Labor’s web site. www.dol.gov

What consumers think is fickle.

Watch what they do with their money. (Remember your dad saying "Do what I say, not what I do"?) The old adage applies here.

Our federal government has been collecting consumer spending data annually for the past quarter century. The data clearly shows that spending patterns change with age and are correlated to household or family needs.

Young couples with a baby need to buy pampers. When the kids are older they buy bicycles. When in high school, the parents pay for expensive car insurance. When the kids are out of school and on their own, Mom and Dad experience something they have only heard about, discretionary income.

They may do some deferred spending on themselves. Soon afterward, they start saving for retirement and paying off their debts. They all but quit shopping so they can quit working in a few more years. Fewer shoppers means lower corporate profits which always drags down stock prices.

Yes. Consumer spending drives our economy. When it is strong, our economy grows and creates jobs. Companies make money which is often reflected in stock prices. When consumer spending is weak, we end up with recessions, lost profits and lousy stock markets.