Can “U” Handle The “Truth?” Avoid Placing Your Head in the Sand

The title of this blog says a lot. I have had several readers of my blog indicate recently that:

1) They believe I am being too negative in many of my posts.

2) Some have indicated that they are going to quit reading my blog because it is making them depressed.

I just returned from a trip to my home state of Indiana, having had dinner with some relatives. When asked for my feelings about the future, I shared my serious concerns regarding the significant headwinds our country is in and will be facing. I could tell from their response that they had hoped for a more positive outlook.

Look at it this way, when you go to the doctor, are you looking for the truth about your health, or are you looking for the truth to be sidestepped?

I implore all readers of this blog and clients of WFG and our mutual fund to face the reality of the reduced growth economy we are facing and not avoid the topic by choosing to “mentally check out.” Your wealth is as important as your health. If you have a heath condition, treat it. If you have a “wealth condition,” treat it as well by seeking advice as to what you can do to adjust to you current state of financial affairs.

INVESTING LESSON:

Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Acting like an ostrich with your head in the sand is a very dangerous approach to addressing your finances and life in general.

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Dividend Stocks Solid Choice Short and Long Term, Regardless of Tax Rates

• Dividend-based investment strategies should produce superior total returns on a multi-year basis, given tepid global economic growth and moderate price appreciation.

• That said, the outlook for dividends varies markedly across countries and sectors, and some seemingly appealing dividend opportunities break down upon closer scrutiny. 

• Some of the sectors we currently favor include consumer staples, health care and energy, given reliability and growth prospects.

“Fiscal Cliff” Tax Hikes Avoided For Many

A summary of the legislation passed by Congress and sent to the President for his signature is as follows:

1. The 2012 rates for Taxable incomes below $450,000 ($400,000 if single) have been permanently extended.  The top bracket was 35% over $388,350 (married).  It will now be $388,350 - $450,000.  Over $450,000 will be 39.6%
2. The capital gain and qualified dividend rate will remain 15% for taxable incomes below $450,000 ($400,000 if single) and will increase to 20% for taxable incomes above $450,000.
3. The Alternative Minimum Tax rate will permanently adjust the income exemption levels for inflation.
4. Itemized deductions will be limited to 3% of adjusted gross income above specified thresholds beginning at $300,000 ($250,000 is single) but not more than 80 percent.  
5. The estate tax exemption level of $5,120,000 has been permanently extended and will be indexed to inflation for future years.  The current estate tax rate of 35% is increased to 40%.
6. The scheduled 27% cut in reimbursement for Medicare services is extended for one year.
7. The extended benefits for long-term unemployed are extended for one year.
8. The dreaded automatic and blunt spending cuts to defense and non defense programs have been extended for two months.  The cuts, if left in place, would have reduced spending by $110B.
9. Several other miscellaneous credits including Child tax credit and Earned income tax credit were extended for 5 years.

The Fiscal Cliff......Maybe?

Based upon what is being leaked to the press tonight, there may be a deal that curtails many of the potential tax increases. This could prove positive for 2013.  That said, there is little, if any good news on addressing the longer term problems of the U.S. economy.

Five Big Retirement Mistakes

1. Not paying for independent financial advice: There is no such thing as a free lunch.
2. Investing in something you do not understand.
3. Supporting adult children: When you are unsure if you do, or will have enough assets.
4. Lowballing elder-care costs: Helping out aging parents can be costly.
5. Underestimating how much you will need in retirement.

Here are three little-known facts about 529 plans

1. Accelerated gifting. A 529 plan is the only investment vehicle allowing five years of tax-free gifts in a single year — up to $130,000 per beneficiary.

2. Estate tax benefits. All 529 plan gifts and investment earnings are excluded from federal estate taxes due to rise from 35% to 55% next year if the Bush tax cuts expire. 

3. Legacy planning. Multiple family members and friends can give to the same 529 plan account to help create larger college funds and lasting legacies.

Last Minute Tax Commentary

For many, the idea of taking capital gains in 2012 to take advantage of lower tax rates vs. what is coming in 2013 is a winner.  When you combine the proposed capital gain rate change of 5.0%, with the 3.8% Medicare surtax, this represents an increase of $8,800 per $100,000 of gain for taxpayers with taxable incomes exceeding $250,000 (married filing joint) and $200,000 (single).  

That is a 58.7% increase in capital gain tax

You could consider selling a major stock position and paying the tax and then buying the stock back if you believe it is rising or it pays a great dividend.  Also, it may be a time to recognize diversification if you have been holding off not wanting to pay taxes. Paying taxes on gains is likely not going to get any cheaper than in 2012 for many years and you have about 13 days to decide!

At my company, we have been diligently working with clients with proactive tax planning all of 2012.

Note: In an effort to increase the number of blogs I write, please excuse any typos!

Paid-To-Wait® Model Trades

A crucial part of our portfolio management process is the beginning of the year rebalancing of our model portfolios. During the month of December, the WFG Investment Department performs an extensive review of all portfolio holdings. Along with this review, we consider hundreds of other investment ideas to determine the best mix for the next year.

Last week, we finished executing the rebalancing in our Paid-To-Wait® model portfolio. The Paid-To-Wait® model is designed to achieve an attractive yield while investing in solid, blue-chip companies. The screening process emphasizes companies that have a long track record of both paying and increasing their dividends. The portfolio is designed to have a low turnover.

Following is a list of the trades that were implemented in the Paid-To-Wait® model:

Buys

· Archer Daniels Midland (ADM)

· AFLAC Inc (AFL)

· BlackRock (BLK)

· CenturyLink (CTL)

· Eaton Corporation (ETN)

· J.P. Morgan (JPM)

· Northrup Grumman (NOC)

· Old Republic International (ORI)

· Union Pacific Corp (UNP)

· Walgreens (WAG)

Sells

· Arthur J Gallagher (AJG)

· British American Tobacco (BTI)

· Colgate-Palmolive (CL)

· Campbell Soup Company (CPB)

· First Energy (FE)

· Lockheed Martin Corp (LMT)

· Pfizer (PFE)

· Rogers Communication (RCI)

· Transcanada (TRP)

· Exxon Mobil (XOM)

Investing Lesson: Using the ConVal® process of rebalancing and seeking opportunities can enhance returns!

Waxing Philosophically: The Tale of The Financial Predator

I recently met another victim of the financial predators that it has been my relentless cause over the past decade to expose.

In my 27-year career, I have seen it all.  One of the things that never goes away, because it has been present since the beginning of time…..is the deceptors.  I have written on this topic many times, the Madoffs, the Tom Petters, IPM Realty and Oxford Financial, to name a few.  If you recall, it was yours truly on my radio show 6 years ago that warned Minneapolis radio listeners to run for the hills from IPM Realty, a sponsor on the same station. Three years latter, MN investors had lost $150 million dollars.  I also warned the SEC about Oxford Financial, who was running a Ponzi scheme out of the VanDusen mansion.  Less than two years later, over $200 million was gone and the orgies and other sorted activity that went on in the mansion were revealed.

Financial predators take advantage of the trusting, the well informed and the uninformed.  While they say a sucker is born every day, the financial predator lures their prey with a sweet sucker of lies that sound like the truth.  In the end, the financial predator wreaks havoc on many, ruins lives, causes the trusting to become untrusting...........and eventually either are rewarded with pain for their sins or simply end up living in a van, down by the river, eating government cheese and drinking PBR.  Ayn Rand in her famous novel, "Atlas Shrugged," calls these guttersnipes “looters."

It is lonely at the top for the successful individuals who have clawed their way to achieving success, the honest way.  It is lonely “up there” because the truly successful are under constant attack by the vipers that desire only one thing, to confiscate the wealth of the men and women of honest success, by any means. These priceless few, having trusted in the beginning and along the way, have the scars from the many knives placed in their back.

For these reasons, the men and women of this type typically have a very small circle of true friends, trust few and spend the majority of their time with people that knew them when they were young.

While it is may be lonely at the top, those who have achieved honest wealth often do at the same time achieve great happiness by having meaningful and deep relationships with what I have coined “foxhole friends." Unlike the “looter-fox” with the knife, foxhole friends will jump in front of a knife or bullet for one another.  Ironic isn’t it, the fine line between taking a knife in the back from a looter, not seeing him coming in the dark vs. stepping between the guttersnipes to save the worthy.

In the end, the fate of the looter-fox, guttersnipe and their many brethren is the same. They all meet their maker, are required to atone for their sins and are then cast into the burning fire of hell, where their craftiness is the language by which exchange takes place among the vermin that exist there.

INVESTING and LIFE LESSONS

1. If it sounds too good to be true, IT ALWAYS IS.
2. The world is full of liars and cheats, for which there is no vaccination or cure other than incarceration to prevent them from their perpetrator ways.
3. Never ignore your gut instinct.  Remember that in the movie, “Basic Instinct”, Sharon Stone uses sex to seduce her victim, much like the snake in the Garden of Eden.
4. Do not, at all costs, look the other way when you smell a stench, just so that there is fresh air on the other side for a little while.

Don't Take the "Bait"

Attention to those still willing to listen to annuity pitchmen.  
Visit WFG’s website, http://www.wadefinancialgroup.com/ and click on the Consumer Advocacy tab and scroll down to the bottom. View the full episode from ABCs "To Catch an Annuity Predator." View these videos as often as needed to inoculate yourself.

Are You Living Above, At, or Below Your Means?

Why is it that there are families with household incomes of $40,000 comfortably making ends meet and saving for retirement with no debt or at the worst, with one outstanding mortgage, while others, that make hundred of thousands of dollars, are having trouble keeping their heads above water? The answer: Living outside your means.

Though many individuals feel the need for the finer things in life, it is possible to live at, or even below, your means to improve your life after retirement. Read the article, "The Secret to Living Well on $40,000 a Year," published this week in U.S. News & World Report to see how a father of two was able to support his family at a comfortable level.

Investing Lesson: Though changing your lifestyle may not be ideal, it can and at times should be done. A dollar that you save today, will be a dollar, plus more, that you have for tomorrow.

The Role of "Alternative" Investments

Members of WFG's portfolio management team attended an Alternative Investments forum in Minneapolis this week representing managers from across the country.

Alternative strategies (Managed Futures, MLP's, Commodities, Hedge Funds, etc.) have been available for years but are often both misunderstood and misused by financial advisors. They are too often "sold" as a stand-alone investment vs. part of a well-designed portfolio strategy. In the majority of cases, Alternative Investments carry high initial and ongoing costs and can have sketchy track records.

WFG has been researching Alternative Investments for our 17 years of managing wealth. We pan through all the "sand and dirt" looking for nuggets of gold as part of our ongoing ConVal® investment research process.

We use these strategies both offensively and defensively. The common misperception is that they are only used for offense- to produce greater returns. WFG generally uses these strategies on a defensive basis. In other words, they are used to protect and reduce volatility in our portfolios while generating a given level of target return with a reduced level of risk by their skillful use.

In several WFG models, as well as in our No-Load Mutual Fund, we hold a variety of these assets, such as Managed Futures, Commodities, and MLPs.

INVESTING LESSON: Don't forget that defense wins championships!

Grade Yourself on Your Personal Finances

Failing can be a part of life. That said, the most detrimental place to fail is your personal finances. Jerry Wade is known for stating, "You end up with what you end up with." Let's make a checklist of things that you can do to improve "what you end up with."

1. Do you have an emergency fund. Unfortunately in life we have to expect the unexpected. The last thing that you want to do is get caught off guard needing to pull money from your investment accounts, high interest rate credit cards, etc. when something goes wrong or the market is already down. We recommend that you have an emergency fund with at least six months to a year's worth of expenses liquid.
2. Know what's in your bank accounts. Overdrawing a checking account by just a few cents could result in a lot of expensive and unnecessary banking fees. Run your household finances like you would run that of a business.
3. You don't understand the difference between a want and a need. One of the biggest impediments to getting your financial house in order is the inability to properly distinguish between a want and a need. When taken down to the most basic level, all of us have only a few primary needs: Food/water, clothing (not high-end designer clothing), shelter, transportation and health care - high-end cars, boats, luxurious vacation homes, etc. are a WANT, not a need.
4. You don't know how much you spend. It's pretty simple, the amount that you save is the difference between how much you make and how much you spend. It is important for you to look at this and realize that if you aren't saving anything that you need to adjust your lifestyle to decrease your discretionary spending. Not saving should not be an option for anyone!
5. Your tastes exceed your spending capabilities. Many individuals are first generation wealth and are fully aware that they can live on less expensive items than they do. If you are shopping at Byerly's instead of Sam's Club or Neimann Marcus instead of TJ Maxx, this may apply to you. If you are not saving due to this spending you, have some self-evaluation to conduct.
   

Investing Lesson: Hitting the reset button will likely take some self-analysis and some decision making but these are all decisions that will improve your personal financial report card. The more money that you spend now, the less money you will have in retirement, the longer you may have to work or both! That is the simple fact.

Beware of Gold Coin Offers/Dealers/Pitch Men

Many of you may consider gold coins a good investment, a way to balance your investment portfolios and reduce your risk with what many consider the world's oldest and most trusted asset. Some of you have informed us over the years that you have bought gold when in fact you have been sold gold coins.
 

There are a number of issues with buying gold coins, unless you are an experienced buyer who knows what you are buying and what "dealers" are selling. Some of the problems include:

1. The transaction costs. Some quick research shows that premiums can be as much as 5% over the price of the gold coins PLUS there is a cost to shipping. I am going to guess that you would lose that premium when you went to sell this trusted asset at a later date.
2. You have to know what it is you are buying. All coin dealers will claim you are buying a rare and valuable coin (at a premium, may I add) when in fact the coin you are buying will have no value beyond its bullion (if it has any).
3. Coin dealers can be crooks! We are unlucky enough to have some of these Ponzi schemers locally.

Charles Ponzi

On September 8th, the FBI raided the downtown Minneapolis coin firm, International Rarities Corporation (IRC) - a local firm that sells investors a "solid investment:" Gold coins!

IRC is being charged with pitching a number of their gold coin buyers shares in a Nevada company. Private offering documents say that they were seeking to raise $10 million to take the firm public. On August 19th, IRC filed for Chapter 11 bankruptcy and it is likely the investors will be left "holding the bag" again. The Minnesota Attorney General's Office is currently investigating complaints specifically about IRC's coin sales.

INVESTING LESSONS 

1. The ads and the dealers all echo the same message: The coins they are selling are one-of-a-kind, available for a limited time and will only increase in value. The truth is, the ads are meant to dupe those who don't understand the investment and those who will rely on emotion and not knowledge. 
2. If you are interested in buying gold, contact us and we will help to insure that you are not taken by individuals like those who were running IRC.
3. WFG has recently completed our national research on the numerous Gold dealers and have a bulletin you can request with the details.  Jerry Wade recently bought a small quantity of the yellow metal from one of the dealers in the bulletin. 

Never Forgotten

Sunday, September 11th, 2011 marks the 10th anniversary of that unimaginable day in which the world froze with stunned horror as our country was attacked. We watched the World Trade Centers collapse, along with the simultaneous attack on the Pentagon and the hijacked United Airlines Flight 93 in Pennsylvania.

One of the heroes on that plane was Tom Burnett of Minneapolis.  He and others are believed to saved the plane from hitting its ultimate target, the White House.

Tom Burnett

We mourned as a nation over the tremendous loss of life and over the pain and fear that these acts inflicted upon the United States of America and its citizens.

All across the nation there will be events and ceremonies to pay tribute to those lost as well as the heroes who came to the aid of our nation on that tragic day 10 years ago. The Senate has established a National Moment of Remembrance that will take place at noon CDT.

Americans are asked during this minute to cease all activities for one minute and to take the time to remember those that lost their lives, the loved ones they have left behind and the service/military men and women who risk their lives each day to serve and protect this country and our freedom.

I will be observing this moment of remembrance and it is my hope that all of you will also. Regardless of political affiliation, race, sex or creed, we as a nation lost almost 3,000 Americans on this day 10 years ago. It is important for those left behind to know that their loved ones are gone but that they will never be forgotten.

"To find a safe journey through grief to growth does not mean one should forget the past. It means that on the journey we will need safe pathways so that remembrance, which may be painful, is possible." ~ Donna O'Toole

How to Make Student Debt, Smart Debt

How to Make Student Debt, Smart Debt

College classes have started which means that tuition bills are due. With college costs still rising and scholarships decreasing, an increasing amount of students and their parents will be forced to become first-time borrowers. Of incoming freshman, 53 percent reported using loans last fall, the first significant increase since 2004, according to ULCA's Higher Education Institute.


With a volatile economy and high unemployment rates, it is important that college students and parents of college students don't load themselves up with unnecessary debt and that they choose the debt wisely.


Unless students limit their debt burdens, choose fields of study that are in demand and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.


Here are some tips from Kiplinger.com if you or your children intend on borrowing money to pay college tuition:


Choose a school that fits into the family budget. Families seem to be learning that picking a school is an economic decision as well as an academic one. In a survey by Fastweb.com, 45% of students ranked “quality of major” as their top reason for choosing a school. But “scholarship or financial assistance” (43%) and “total costs” (41%) came in a close second and third -- even higher than “academic reputation” (38%).


Among students who leave school with no debt, 85% graduated from public colleges, according to a report by Mark Kantrowitz, publisher of Fastweb.com and FinAid.org. Selecting an affordable school doesn’t have to mean sacrificing quality. To find public and private schools that deliver both, see our Best College Values special report.


Bypass the four-year route. Starting at a community college and transferring to a four-year school can save a lot. You can also slice a year off your expenses if your child takes Advanced Placement courses in high school or qualifies for college credits through the College Level Examination Program.


In Kantrowitz’s study, half the students who graduated with no debt graduated from a community college (one-third graduated from a public four-year college). Other hallmarks of students who graduate debt-free: They tend to spend less on textbooks -- $1,000 or less per year and are more likely to live at home with their parents.


Use money you don’t have to pay back. It’s never too late to save, especially if you live in a state that gives you an income tax break for contributions to state-sponsored 529 plans. Visit FastWeb.com to look for scholarship and grant money from schools and other sources where your student’s grade point average or other achievements would make him a standout.


If you must borrow, borrow smart. Start with government-sponsored loans, which offer flexible repayment options -- such as lower payments and deferral -- and fixed interest rates. These include Perkins loans, for eligible students, and Stafford loans, which may be subsidized if your student qualifies. Also, look into PLUS loans for parents or a home-equity line of credit. (For more information on student loans, go to StudentLoans.gov.) With that combination, you shouldn’t need private loans, which carry a variable interest rate and generally require a co-signer.


Apparently, many students don’t realize that federal loans are the most attractive. “A majority of undergraduates who take out risky private loans could have borrowed more in safer federal loans instead,” reports the Project on Student Debt.


It’s also smart to pay all or part of any loan interest as it accrues so that it isn’t added to the balance that has to be repaid. And remember that even the best student loan can be a dual-edged sword, encouraging a student to borrow more than he should.


Know what you’re getting into. Use the Student Loan Advisor calculator at FinAid.org. It provides an estimate, based on starting salaries of various professions, of the maximum in student loans your child should take out and how much it will cost to pay it back.


One rule of thumb is that students should try to limit their total borrowing to no more than their expected starting salary when they graduate. FinAid warns that “if you borrow more than twice your expected starting salary, you will be at high risk of default.”


And possibly the most important, choose a marketable major. Moody’s is right on the money in suggesting that students pick fields of study that are in demand. That doesn’t mean your child has to major in engineering or computer science. But if he/she is majoring in economics, it couldn’t hurt to take accounting. If he/she is studying history or government, he/she could learn a foreign language. And if he/she insists on studying something as precarious as journalism, he/she should minor or concentrate in another subject -- such as business, health or computer skills.


Investing Lesson: Borrowing at times is unpreventable but making sure that you are doing it in the smartest fashion is key!