…And Finally.
31 Aug 2011 Leave a Comment
In reviewing the previous post, does it remind you of the income disparity that exist between men and women? It is well known that when it comes to earnings, women earned 77 cents for every $1 earned by men according to Income, Poverty, and Health Insurance Coverage in the United States: 2008. After a divorce, women usually end up suffering greater economic challenges when compared to divorced men.
So what do the 25 corporations receiving a combined total of just over $4.5 Billion in tax refunds while their CEOs average take home pay was in excess of $16 million and our elected officials in Washington advocate reducing taxes for the wealthy and corporations have to do with women who earn less than men?
Nothing, I just thought I’d ask.
Chief Executive Salaries vs. Taxes
31 Aug 2011 Leave a Comment
in Corporate Taxes, Executive Compensation
Thought I’d share this little gem from The Atlantic today:
25 CEOs Who Earned More Than Their Companies Paid in Taxes
By Sarah Anderson and Sam Pizzigati
At least 25 CEOs earned more than their companies paid in income taxes in 2010, according to a new report from the Institute for Policy Studies. Exclusive to The Atlantic, the authors explain their findings and why they matter.
This month, 40,000 Verizon strikers went back to work without a new contract. But their strike hit a nerve. Most Americans cannot understand why Verizon workers should have to spend up to $3,000 more for their family’s health care while the company’s top five execs have walked off with a quarter-billion dollars in personal pay over the past four years.
If that seems outrageous, just wait. Verizon Inc, got a refund in corporate income taxes in 2010, paid for by U.S. taxpayers. That makes Verizon’s CEO Ivan Seidenberg one of at least 25 chief executives in the country who earned more in compensation than their company paid in corporate income taxes in 2010.
Today, the Institute for Policy Studies released a report on CEO pay in America. Our research this year uncovered an astounding fact: Of last year’s 100 highest-paid chief execs, 25 took home more in CEO pay than their company paid in 2010 federal income taxes. Here they are:
Chief Executive Salaries vs. Taxes
Stanley Black & Decker
CEO: John Lundgren
Executive Compensation, 2010: $32,570,596
U.S. Corporate Income Taxes Paid, 2010: -$183 million
Ford
CEO: Alan Mulally
Executive Compensation, 2010: $26,520,515
U.S. Corporate Income Taxes Paid, 2010: -$69 million
Chesapeake Energy
CEO: Aubrey McClendon
Executive Compensation, 2010: $21,044,952
U.S. Corporate Income Taxes Paid, 2010: $0
Aon
CEO: Gregory Case
Executive Compensation, 2010: $20,783,301
U.S. Corporate Income Taxes Paid, 2010: $16 million
Bank of New York Mellon
CEO: Robert Kelly
Executive Compensation, 2010: $19,379,257
U.S. Corporate Income Taxes Paid, 2010: -$670 million
Coca-Cola
CEO: John F. Brock
Executive Compensation, 2010: $19,114,318
U.S. Corporate Income Taxes Paid, 2010: $8 million
Verizon
CEO: Ivan Seidenberg
Executive Compensation, 2010: $18,126,854
U.S. Corporate Income Taxes Paid, 2010: $-705 million
Dow Chemical
CEO: Andrew Liveris
Executive Compensation, 2010: $17,739,490
U.S. Corporate Income Taxes Paid, 2010: -$576 million
Prudential Financial
CEO: John Strangfeld
Executive Compensation, 2010: $17,187,028
U.S. Corporate Income Taxes Paid, 2010: -$722 million
Ameriprise
CEO: James Cracchiolo
Executive Compensation, 2010: $16,252,851
U.S. Corporate Income Taxes Paid, 2010: -$224 million
Honeywell
CEO: David Cote
Executive Compensation, 2010: $15,216,953
U.S. Corporate Income Taxes Paid, 2010: -$471 million
General Electric
CEO: Jeff Immelt
Executive Compensation, 2010: $15,199,762
U.S. Corporate Income Taxes Paid, 2010: -$3.2 billion
Allegheny Technologies
CEO: Patrick Hassey
Executive Compensation, 2010: $14,978,587
U.S. Corporate Income Taxes Paid, 2010: -$47 million
Chief Executive Salaries vs Taxes
Mylan laboratories
CEO: Robert Coury
Executive Compensation, 2010: $14,975,235
U.S. Corporate Income Taxes Paid, 2010: -$73 million
Wynn Resorts Ltd
CEO: Steve Wynn
Executive Compensation, 2010: $14,615,779
U.S. Corporate Income Taxes Paid, 2010: $0
Capital One Financial
CEO: Richard Fairbank
Executive Compensation, 2010: $14,850,675
U.S. Corporate Income Taxes Paid, 2010: -$152 million
Marsh & McLennan
CEO: Brian Duperreault
Executive Compensation, 2010: $14,038,187
U.S. Corporate Income Taxes Paid, 2010: -$90 million
Boeing
CEO: Jim McNerney
Executive Compensation, 2010: $13,768,019
U.S. Corporate Income Taxes Paid, 2010: $13 million
Motorola Systems
CEO: Gregory Q. Brown
Executive Compensation, 2010: $13,732,802
U.S. Corporate Income Taxes Paid, 2010: $7 million
Nabors Industries
CEO: Eugene Isenberg
Executive Compensation, 2010: $13,537,486
U.S. Corporate Income Taxes Paid, 2010: -$138 million
Qwest Communications
CEO: Edward Mueller
Executive Compensation, 2010: $13,446,399
U.S. Corporate Income Taxes Paid, 2010: -$14 million
Cablevision Systems
CEO: James Dolan
Executive Compensation, 2010: $13,320,691
U.S. Corporate Income Taxes Paid, 2010: -$3 million
Motorola Mobility
CEO: Sanjay Jha
Executive Compensation, 2010: $13,016,126
U.S. Corporate Income Taxes Paid, 2010: $12 million
eBay
CEO: John J. Donahoe
Executive Compensation, 2010: $12,382,486
U.S. Corporate Income Taxes Paid, 2010: -$131 million
International Paper
CEO: John Faraci
Executive Compensation, 2010: $12,303,423
U.S. Corporate Income Taxes Paid, 2010: -$249 million
These 25 CEOs averaged $16.7 million each, well above last year’s $10.8 million chief exec pay average at America’s top corporations. Most of the companies these 25 CEOs ran actually came out ahead at tax time, collecting tax refunds from the IRS that averaged $304 million.
Although Verizon paid less in income taxes than its average customer paid in phone bills, the company broke no laws. America’s corporations spend hundreds of millions of dollars a year on lobbying, and they get a good return on their investments. They get tax loopholes — and plenty of them. Last year, Verizon shelled out $16.8 million to lobby federal lawmakers and another $18.7 million on contributions into the campaign accounts of their favorite federal politicians.
What can we do about all this? Maybe the people need some lobbying of our own. We need to press lawmakers to end the loopholes that let our Verizons lavish dollars on their executives — and their favorite pols — at the same time they’re stiffing Uncle Sam.
We also need to take the incentive out of corporate tax dodging. The financial reform bill Congress enacted last year actually takes a useful step in that direction. This legislation, known as Dodd-Frank, includes a provision that requires major corporations to reveal the ratio between what they pay their top exec and what they pay their “median,” or most typical, workers.
Corporate lobbyists let this disclosure mandate slip past them last summer. Now, they’re working to have the mandate repealed before federal regulators can put it into effect. What has corporations so worried about this disclosure mandate? If data on the pay gap between executives and workers became available by individual company, lawmakers could start leveraging the power of the public purse. They could, for instance, deny federal tax breaks or government contracts to companies that pay their CEOs over 25 times what they pay their workers.
A generation ago, few corporations paid their top execs much over 25 times what their workers were receiving. The ratio between CEO pay and average worker pay last year: 325.
_____
Methodology: The data in this report is based on the “Current U.S. taxes paid” reported in the tax footnote of corporate Form 10-Ks, filed annually with the Securities and Exchange Commission. All are available electronically at www.sec.gov. We exclude “deferred taxes” because these are amounts that may or may not be paid at some future date, but for which no payment is made in the current year. Among the “deferred taxes” are taxes theoretically owed on money sheltered in offshore tax havens. So long as those funds are kept offshore, tax payments can be deferred indefinitely. breakdown of revenue, assets, employees, and reported domestic net profit for clues to companies’ profit-shifting behavior.
Editor’s note: Snooping around the Internet, you might find these companies reporting different tax numbers. Verizon, for example, reported 14% effective tax rate in 2010. This figure includes deferred taxes that may be paid years down the road, IPS tax analyst Scott Klinger explaned. IPS looked only at taxes paid to the IRS in the year 2010 alone.
Executive compensation: Associated Press. Includes: salary, bonuses, perks, any interest on deferred pay that’s above market interest rates, and the value a company places on stock and stock options awarded during the year.
Traders vs. Investors – What now?
08 Aug 2011 Leave a Comment
The market closed about 3.5 hours ago and since its close there have been, according to Google News, over 2,500 articles written about the market decline. Not that such a significant decline is not news – it is, but to who? Rather than add to DOW-MAGEDDON!!! Sorry, I couldn’t resist…
I thought I would share a few definitions from Investopedia.com, an online investment encyclopedia.
Trader
What Does Trader Mean?
An individual who engages in the transfer of financial assets in any financial market, either for themselves, or on behalf of a someone else. The main difference between a trader and an investor is the duration for which the person holds the asset. Investors tend to have a longer term time horizon, whereas traders tend to hold assets for shorter periods of time in order to capitalize on short-term trends.
Investopedia explains Trader
One main problem with engaging in short-term trading is commission costs. Because traders frequently engage in short-term trading strategies to chase after profit; they often rack up large commission fees. However, an increasing number of highly competitive discount brokerages has made this cost less of an issue.
What Does Correction Mean?
A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index. Corrections are generally temporary price declines, interrupting an uptrend in the market or asset.
Investopedia explains Correction
A healthy market will correct from time to time.
10% is a correction and a 20% decline is a bear market.
Again, investors with a long-term outlook should view this market decline as par for the course and not panic.
Finally…
Not to sound too political, but the long term economic challenges our nation is facing should transcend politics and should involve all individuals willing to address the hard questions with a since of compassion for the those of our population who have the least and are in need or will need assistant. The decisions are not easy but if the solutions falls disproportionately on the backs of the middle class, poor, and disenfranchised, then I fear we truly will lose our AAA ratings in the world.
The Debt Ceiling Debate – Priceless!
29 Jul 2011 Leave a Comment
Recently, I had a couple of discussions about the current debt ceiling debate and the potential impact on our clients’ investment portfolios. One discussion was via email with a media person looking for an “individual investor’s” perspective and the other was a conversation with a client. Despite the discussions being with different people with very different objectives, the question was basically the same – “should there be reason for concern.”?
Okay, so I’m going to go out on a limb and share what I said to both about being “concerned” – ‘no, I don’t think so….’ It wasn’t that succinct, but it was close. Basically, I explained that our clients’ portfolios are allocated with a client’s long-term goals in mind and that if done right, we’re not reactionary when faced with a market “crisis.” Additionally, we advise our clients to avoid getting caught up in some of the noise and panic emanating out of Washington and the financial channels.
Our client asked if I thought the market would drop 5000 points come August 2nd. While her question was perhaps meant to exaggerate a potential market decline, it underscored a more serious question of whether or not she should liquidate her portfolio. My response was that I didn’t think the market would drop 5000 points come August 2nd, but I did think the decision to sell her investments should be based more upon changes in her life and not a debt crisis. I explained that if her financial goals involved using some of her money within a year or two, then my advice would be that she keep those funds in a cash (equivalent) account irrespective of the debate currently taking place in Washington. Simply put, we can’t predict short-term swings in the market, so it’s best not to take on the risk.
I have been paying some attention to the debate, and I’ve come to the conclusion, it is unclear what will happen if the U.S. defaults. Some economist might get it right and some might get it wrong as to the impact on our economy and capital, or maybe it will be resolved in the final minutes, and we’ll never find out. Early on I believed it would be resolved and there would be a collective sigh until the next crisis. I’m still cautiously optimistic.
Finally…
I have to admit watching the debate coming out of Washington is sort of like watching married couples argue about last month’s credit card spending once their statement arrives. What makes it kind of weird is that the argument is about controlling future spending (which is legitimate) but tied to their future spending argument, they’re also arguing about whether or not to pay the current bill (the debt ceiling). What do you think would happen if you called the credit card company and said, once your statement arrived, “I’m not going to pay for the charges I made last month, for I’ve decided to default on my bill.”? Priceless!
Five myths about the debt ceiling – A Conversation with Bruce Bartlett
12 Jul 2011 Leave a Comment
I stumbled upon this article in the Washington Post (online) and thought it was, by far, one of the most honest conversations and description of the current debate about raising the debt ceiling. You can read Bruce Bartlett’s article, “The Five myths about the debt ceiling” , which is short and sweet, but what follows is an online Q & A session he held shortly after the article was published. It’s pretty good and should be view as a conversation that transcends politics.
In his recent “Outlook” piece former adviser to Ronald Reagan Bruce Bartlett debunked five myths about the debt ceiling. In his piece he writes, “In recent months, the federal debt ceiling – last increased in February 2010 and now standing at $14.3 trillion – has become a matter of national debate and political hysteria. The ceiling must be raised by Aug. 2, Treasury says, or the government will run out of cash. Congressional Republicans counter that they won’t raise the debt limit unless Democrats agree to large budget cuts with no tax increases. President Obama insists that closing tax loopholes must be part of the package.”
National Debt Limit & Default?????
The tax payment to the US Treasury each month far exceeds the interest payment due, and is also sufficient to fund mandatory Federal Outlays. So why is there talk of default on the servicing of the National Debt when there are sufficient revenues to pay for it?
At some point the Treasury will have to decide whether to pay Social Security benefits or interest on the debt.
Debt ceiling
Obviously, because there is a Democrat in the WH.
Debt ceiling deadline is missed, What then?
The deadline was back in May. The Treasury is just fiddling with the books to prevent a legal breach of the debt ceiling.
Political Ideology
I still consider myself to be a conservative in the tradition of Edmund Burke, Russell Kirk and William F. Buckley. I don’t think most of today’s conservatives have any idea who those people were.
Debt Ceiling
If the debt limit is not raised, the president will have to break the law by defaulting on the debt or not paying bills he is obligated by law to pay.
The Bush tax cuts were economically worthless.
Reagan and the Right
They are not driven by rational analysis, but by right wing dogma.
Ronald Reagan and the Modern GOP
I think there is no possibility that Ronald Reagan could get the Republican nomination for dog catcher today.
Myth #5 and priortized spending.
The Congressional Budget and Impoundment Control Act of 1974.
Borrowing from Social Security; and how repaid, if ever done.
Excess Social Security funds are invested in Treasury securities by law. Whether this is done inside or outside the Treasury is irrelevant.
From whence comes the will to work together?
Historically speaking, the political situation today is not dissimilar to that in the late 19th century. Eventually, there was a liberal backlash and we had the Progressive Era. I suspect the same thing will happen again, but I don’t know when or how.
5 myths about the deficit
Unfortunately, in my view, Treasury has rejected the constitutional option as legally unsound. Therefore, as a practical matter, the issue is dead.
financial advisement
He still has financial advisers. But he has lost most of the group that started with him at the beginning of his presidency. This is normal turnover.
Why have a debt ceiling?
I testified to that effect before the Senate Financial Committee 10 years ago. Bob Rubin, Alan Greenspan and others have called for abolition of the debt ceiling. But members of Congress like it because it allows them to vote for spending increases and tax cuts that increase the deficit and then pretend to be fiscally conservative by voting against the debt limit.
Republican Plan
Blame Obama. What else?
Debt Limit
Interest rates on T-bills are literally close to zero.
Debt ceiling
The Affordable Care Act was not designed to reduce spending. It’s purpose is to expand health insurance coverage without increasing spending.
“Obviously, because there is a Democrat in the WH.”
I think the vast bulk of Tea Party members are ignorant fools when it comes to understanding how government really operates. I have thought so for 2.5 years and see no reason to change my opinion.
Global Economy
I think it is a tragedy that we have allowed our public infrastructure to deteriorate so badly. But Republicans universally seem to feel that all infrustructure spending is nothing but wasteful pork.
John Boehner
He never had control in the first place. Increasingly, he looks like a figurehead, just like the last Republican speaker, Dennis Hastert.
Voter backlash?
I think Obama is in more danger of losing his base at the moment. If he supports a lot of social spending cuts a lot of Democrats are going to think they might as well have a Republican in the WH.
debt ceiling
Those who shorted government bonds, like Eric Cantor.
from what i’ve read
no other country has a ‘debt ceiling’ limit anyway. and it seems to be just a farce. but we REALLY need these discussions. doing what we have been doing will lead to a disaster.
It’s true that no other country has a debt limit. I’ve checked with S&P about this.
Ignoring the debt ceiling
Good question. Some legal scholars argue that even if the Treasury’s action was illegal no one would have standing to sue to stop it.
debt ceiling
If there is a default of any duration there is a great danger that the entire financial system will freeze up. Higher interest rates will be the least of our problems.
Opposition
Can you think of a time when a majority party was so opposed to raising the debt ceiling?
No
Revenue Increases?
I don’t see any possibility of Republicans agreeing to so much as one cent of tax increases. I expect Obama to fold.
Administration responses
A.
It’s been rejected by Treasury.
Spending Priorities
It’s more complicated than that. For one thing, the Treasury needs $500 billion in new cash next month to repay bonds that are maturing.
Polarization in politics.
Bruce, I am of the latter generation of “gen y” and wanted to get your input regarding the future of American politics. Can one assume that the overall integration of ideas in the political arena will not be as polarized as they are now when the “young folks” step in?
Young people have little influence on politics because they don’t vote. Old people have all the power because their numbers are large and growing and they vote in large numbers.
Where will it lead too?
My assumption is that either Obama will cave to Republican demands or both sides will agree to a temporary rise in the debt limit while talks continue through the August break.
we don’t need more progressives
The debt limit has nothing whatsoever to do with the size of government.
Future interest rates
The estimates I have seen suggest an immediate rise of about six tenths of a percent across the board.
Parity and the Bush Tax Cuts
Bruce: Thanks for trying to thread the needle here. However, please, whatever you allow the GOP to call their rejection of removing Bush’s tax breaks for the wealthy please just don’t call it “Parity”. I pay 28% of my yearly income to Uncle Sugar to keep the Federal government solvent each and every year (which represents a sizeable amount of my tolal wealth). What percentage of their total yearly income do you think the well off pays into the Treasury? And please don’t try and tell me that the Bush Tax cuts have generated more jobs since they were implemented, because they obviously haven’t.
Effective tax rates on the wealthy have fallen for some years. You can find the data at www.cbo.gov.
Forcing the President to break the law
Since we are so close to a presidential election I don’t think anything Obama does will lead to impeachment.
It’s partisan!
That “myth” was probably not well phrased.
Educating Congress
People in markets just assume that our political leaders are not so stupid as to risk a default. I am not so sure.
TBills at Nearly Zero
The debt is about $14 trillion. Do the math.
Historical perspective
I find it interesting we are the only country with a debt limit. What were the political reasons that led to the original creation of a debt limit, and what validity do you see these reasons having in the 21st century?
Until 1917, Congress had to authorize every Treasury bond issue individually. During WWI Congress decided it was easier for everyone to just set an overall limit on borrowing.
Republican Stance
I think there are a lot of sensible Republicans left in Congress. The problem is that they are scared to death of a primary challenge from some idiot Tea Party member.
Republican Opposition
Never underestimate the power of wishful thinking.
wait a second…
Congress often delegates its power to spend, as it has done with entitlement programs.
Is there another last ditch option?
You state, if the debt ceiling is not raised, the President will have to break the law and not pay debt. Is the reverse possible: could the President amd Federal Reserve go ahead and print more money to pay the debts?
The problem would be how to do it in a way that didn’t increase indebtedness. One possibility would be to sell some of the Treasury’s gold to the Fed.
international effect
The difference between us and Greece is that all of our debt problems are purely political in nature.
Will Congress pass the debt limit increase by August 2?
Do you believe the present debt ceiling limit debate will result in Congress finally dealing with Entitlement spending programs such as Medicare?
Not really.
job creation
Fire all the Republicans next year.
Follow Up
I don’t know offhand. The Bipartisan Policy Institute has made some calculations. Check their web site.
cold war
I think the growing inequality of wealth and income distribution is both a moral and economic problem.
Balanced Budget
No
What would Reagan do?
Reagan was much better at using the bully pulpit than Obama is.
Tax Increases
Assuming there is a deal based on cuts only, doesn’t Obama then turn around and say he is willing to extend the Bush tax cuts for the middle class but his price on doing that is to let them expire on the wealthy and then let the GOP squirm?
I don’t think Obama has the guts to say publicly that he will allow the Bush tax cuts to expire. Even if he believes it would be a good idea, which I doubt, his political advisers will never allow him to say it going into an election year.
can YOU do something
I spoke to some House Democrats last week.
bipartisan?
We do need political reform in this country, but I doubt that anything worth doing is politically possible.
If President and Federal Reserve go ahead and print more money to pay the debts…
The Fed cannot help the Treasury if it lacks the ability to borrow.
Party identity
No. I identify myself as an independent.
If he supports a lot of social spending cuts a lot of Democrats are going to think they might as well have a Republican in the WH
At the rate things are going I think a lot of Democrats will stay home on election day.
Bully Pulpit
I think there was a very narrow window of opportunity in early 2009 to do stimulus. Unfortunately, the stimulus package wasn’t large enough or properly designed. It’s now politically impossible to do more.
Obama
I was hoping he would use the constitutional option to avoid Republican extortion. Unfortunately, he rejected that idea and is now at their mercy. That was his only way out.
Working World
07 Jul 2011 Leave a Comment
This is cool because it gives us a nice visual snapshot of how we compare internationally courtesy of The Social Cast Blog:
The New Healthcare Laws and Medicare: What Does it All Mean?
06 Jul 2011 Leave a Comment
in Increasing Cash Flow, Living Assured
As I have grown older, I have come to appreciate the saying, know your limitations. As a business owner there is so much that goes into “working on the business” versus “working in the business” that it is virtually impossible to know everything there is to know. Group benefits can be especially complicated particularly with all of the changes that are being discussed in Washington, D.C.
By now I’m sure you’ve heard about proposed changes to healthcare laws. If you are a business owner, you are wondering how these new laws will affect your bottom line. These laws are particularly important for baby boomers aged 55 and older because of Medicare.
The Patient Protection and Affordable Care Act of 2010
This law requires that most individuals have minimum health insurance. The legislation creates new public plans and expands the Medicare and Medicaid programs to include more beneficiaries, while requiring that all health plans extend coverage to individuals, regardless of health status.
Employers are generally not required to offer coverage, but those who don’t may be subject to a penalty tax. Specifically, any employer with more than 50 employees who does not offer health insurance faces a potential monthly tax penalty of $166.67 per full-time employee (excluding the first 30 employees) for any month that insurance is not offered.
Employers with 200 or more employees must automatically enroll employees in health insurance plans offered by the employer, though the employee may voluntarily opt out of the plan. This legislation has caused an uproar in many circles, and unless certain provisions of the law are repealed, business owners with 50+ employees will have to comply with the requirements.
The good news: there are ways to save
Business owners will find that while insurance for older employees may cost more, younger employees may qualify for less expensive coverage. An individual between 60 and 64 costs three times as much to insure as someone in his/her 30s. To continue this trend, a person aged 65 is about 25% more expensive to insure than a 60-year old. Using a real company of 40 people with a $500 deductible and a favorable rating, an individual aged 30-39 costs $344; aged 60-64 costs $1,049 and at age 65 costs $1,291. But employers can realize cost savings because of Medicare, and all people aged 65 and older are eligible, whether they’re working or not. Signing up for Medicare is easy and can be completed online or by phone.
A workshop to address the complexities of new healthcare laws
To help you understand the complexities of the new healthcare laws, long-term care and Medicare, we invite you to join us for a complimentary workshop on July 19, 11:45-1:00, at the Oakland Chamber. Lunch will be provided. The topic will be: “What you Need to Know about Medicare”. Joining me will be Lynn Caffrey, of Caffrey Insurance Solutions a group insurance broker with more than 30 years of experience and an expert on the new healthcare laws; and Jain Williams, a State Farm Agent with more than 20 years of experience in long-term care. To register for the workshop, contact Lynn Caffrey, 510.444.5447; or Jain Williams, 510.530.3222.
Helping Dad with His Investment Portfolio
19 Jun 2011 Leave a Comment
Last month we celebrated Mother’s Day by providing dad’s with investment advice on how to manage the household portfolio. Thanks for the positive feedback. This month I thought I would share five more tips to help dads avoid the pitfalls of trying to hit it big when it comes to the family investment portfolio.
Studies have shown that men are more willing to “gamble” on a big payoff when it comes to investing whereas women strive for more steady predictable returns. However I have noticed that as men grow older, they tend to come around to wisdom of planning. I hope these tips help facilitate the evolutionary process sooner.
1. Diversify
Diversifying your investments is one of the best ways you can reduce your portfolio volatility. The market will do what it does, but asset classes often perform differently under different market conditions, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives (e.g., money market funds, CDs, and other short-term instruments), has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another.
I can hear it now, “but what about 2008-2009; everything went down.” Diversification can’t totally eliminate the possibility of market loss. While all asset classes suffered a decline during 2008-2009, depending upon the portfolio allocation; the decline was not as severe as the overall market and if you were not trying to hit a short-term homerun, your portfolio should be on the road to recovery.
2. Focus on the big picture, not on the day-to-day noise
Be honest; you’re watching CNBC, and someone says, “back up the truck” on this next stock, for it is sure to go up in value. What do you do? First your heart starts beating fast from the adrenalin, and then you buy it, right? Okay, maybe they’re not as explicit, but it’s close. Bottom line; you’re too focused on all of the money you’re going to make short-term to consider wisdom of whether or not you should follow the advice of CNBC.
As the market goes up and down, it’s easy to become too focused on day-to-day noise. Instead, keep your eyes on your long-term investing goals and avoid watching the financial channels (noise) that encourage you to trade. If you still have years to invest, don’t get sucked into short-term “opportunities” that might just be noise in the marketplace.
3. Sell, Sell, Wait!
During the market fallout in 2008-2009, many panicked and sold everything and moved into cash. You may have been tempted to pull out of the market as well and look for less volatile investments. While tempting, the small returns that typically accompany low-risk investments may have seemed attractive when compared to more risky investments are posting negative returns. But would you have pulled out for the right reason?
How you choose to invest your money should be consistent with your goals and time horizon. For instance, putting a larger percentage of your investment dollars into vehicles that offer safety of principal and liquidity (the opportunity to easily access your funds) may be the right strategy for you if your investment goals are short-term (i.e., you’ll need the money in 1 to 2 years) or if you’re growing close to reaching retirement. But if you still have 5 years or more to invest, note that stocks have historically outperformed investments (i.e. money market funds, CDs, and other short-term instruments) over time, although past performance is no guarantee of future results.
4. Is timing everything when it comes to the market?
Some will argue for and against when is the right time to invest or “time the market.” Regardless of your philosophy on the subject, this next piece of advice is for the do-it-yourselfers: don’t do it, for it will cause you a lot of frustration.
Don’t try to time the market by buying shares at the moment when you think the price is at its lowest. In fact, don’t worry about price at all if it’s a good investment and your time horizon is sufficiently long. Instead, consider investing a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of stock, but when the price is lower, the same dollar amount will buy you more shares. This strategy is called Dollar Cost Averaging.
Although dollar cost averaging is not as exciting as CNBC advice and it can’t guarantee you a profit or avoid a loss. Note, however a regular fixed dollar investment may result in a lower average price per share over time, assuming you continue to invest through all types of markets. You should consider this strategy only if you’re financially and emotionally able to make ongoing purchases, regardless of price fluctuations.
5. Don’t hide your head in the sports page
Finally, while focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check your portfolio at least quarterly, more frequently if the market is particularly volatile or when there have been significant changes in your life.
If you find yourself dreading the thought of opening your brokerage statement when it arrive each month, it may be time for you to seek guidance from a CERTIFIED FINANCIAL PLANNERTM professional. They are trained to review your financial goals and whether or not your investments are in line or working against your overall financial objectives. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. A financial professional can help you decide which investment options are right for you. I hope these tips are useful for all of the do-it-yourselfer-dads out there. I can assure you there is more to life than watching a ticker all day. Happy Father’s Day!
Mom’s Retirement Planning Advice for Dads
27 May 2011 Leave a Comment
in Uncategorized Tags: financial planning for women, Retirement
Tax season is over and many of us can breathe a sigh of relief. Now that tax strategies have been thoroughly explored and implemented, what is there to talk about? Since we’re celebrating Mother’s Day this month, I thought I’d take a moment to focus on women and retirement.
Women as caretakers means less time for careers
It’s no secret that women in general face special challenges when planning for retirement. Because their careers are often placed on hold to care for children or elderly parents, women generally end up spending less time in the workforce and earn less money than men in the same age group. As a result, their retirement plan balances, Social Security benefits, and pension benefits are often lower. In addition to earning less, women generally live longer than men, and they face having to stretch limited retirement savings and benefits over many years.
Consider an IRA
To meet these financial challenges, women need to make their own retirement planning a priority. Even if you’re a stay-at-home mom and entrepreneur, you should continue to save and invest for retirement. If you’re married and file your income taxes jointly, and otherwise qualify, you may open and contribute to a traditional or Roth IRA as long as your spouse has enough earned income to cover the contributions. Both types of IRAs allow you to make contributions of up to $5,000 in 2010 and 2011, or, if less, 100% of taxable compensation. If you’re age 50 or older, you’re allowed to contribute even more–up to $6,000 in 2010 and 2011.
For Guys Only
Chances are your wife, mother, girlfriend, or special someone in your life has worried at some point about outliving her retirement income. While studies have shown that women are just as capable as men when it comes to managing their investments, in many cases, they’re just not that interested. Instead, women rely on the men in their lives because guys really enjoy the process and they trust that their spouses, fathers, male friends, or brothers are providing sound investment advice.
Women outlive men
Another reality is that women live longer than men. At age 65, women can expect to live, on average, an additional 19.9 years. In addition, many women will live into their 90s. This means that women should generally plan for a long retirement that will last at least 20 to 30 years.
Women should also recognize the possibility that they will be spending some of those years alone. According to statistics, 42% of older women are widowed, 11% are divorced, and approximately half of all women age 75 and older live alone. For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pensions. So what can you do to ensure your female “client” has enough income to last throughout retirement?
Here are a few tips for guys who insist on handling the finances:
- First, don’t assume your risk tolerance is the same as her’s. You may get a thrill from riding the market up and down, but this investment strategy may hold little allure for her. Consider a more boring but steady pace of performance.
- Have a clear plan and review it with your partner regularly. Sometimes when I talk with guys about their investment goals, they look at me as if I just yelled ‘Home run!’ at a football game. Then they respond by simply saying, “my goal is to make money.” I have to explain to them that having a plan is a little more than simply making money.
- Estimate how much income your life partner might need if you were to die suddenly. Use current expenses as a starting point, but realize that expenses may change dramatically by the time you retire.
- Set a realistic retirement savings goal and keep track of your progress. This not only provides accountability, but lets you review your strategy and make adjustments.
- Many of our clients are women, so I’m well versed in the unique challenges of women preparing for retirement. Please contact me to talk about your retirement plans. Having a neutral third party can work wonders in gaining insight into each other’s fears, goals and values about money. The key is to listen without judging.
Happy Mother’s Day
Where in the world is FP?
26 May 2011 Leave a Comment
I’ve been writing. I just haven’t been posting my blogs for whatever reason….I received some great feedback from my previous post and encouragement to do vblog (video blogs) Thanks Diane, but I’m still working through my camera phobia.
Over the next few days (and hours), I will be posting previous articles starting with my “Mother’s Day” article since it is still May. By the way, if you’re so inclined; you can still make Mom feel special this month (any month or day really) by just taking the time to call and tell Mom, “Thank you for raising, nurturing, and protecting me. I love you.” If my Mother was still here, I would.
