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Showing posts from 2011

Hire an Advisor or Go it Alone?

Walter Updegrave, in addition to being an award-winning journalist, speaker, author and senior editor of MONEY is a professional who truly understands the world of retail investing and communicates his thoughts in a manner meaningful to his readers. As an example, below is an excerpt from a recentCNN Money releasebased on a readers question “Should I hire a financial adviser to manage my retirement portfolio, and can I afford to?”

“The answer depends largely on how comfortable you are going it alone -- and how good a job you think you could do overseeing your finances without help from a pro. Let's start with one key aspect of retirement planning: investing. As long as you're familiar with the concept of asset allocation and you're comfortable picking funds, you shouldn't have trouble building a diversified portfolio on your own. And you can get plenty of assistance short of hiring an adviser: These days most 401(k) plans provide tools to help you assess your investing op…

The Euro's Troubles

The excerpt below is from a keynote address gave in 2000 by "Uncle Milt" (or Milton Friedman as he's more commonly known). With all that is going on in Europe currently, it's not likely the question of whether the Euro is long-term sustainable will go away.

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"The euro is one of the few really new things we’ve had in the world in recent years. Never in history, to my knowledge, has there been a similar case in which you have a single central bank controlling politically independent countries.


The gold standard was one in which individual countries adhered to a particular commodity—gold—and they were always free to break or to leave it, or to change the rate. Under the euro, that possibility is not there. For a country to break, it really has to break. It has to introduce a brand new currency of its own.
I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among th…

Interest Rate Curve Balls

Predicting interest rate movements correctly is hard. Predicting them for a living is harder still. But getting it wrong is nowhere near as painful as the experience of those who lose their own money based on someone's forecast.
A year ago, the Reuters news agency polled a group of people closer than just about any other community to those who actually decide rate movements. These were 16 money market dealers who do business directly with the US Federal Reserve.1The so-called primary dealers — banks or broker-dealers — are market makers for government securities. They consult directly with the US central bank and Treasury about funding the budget deficit and implementing monetary policy. So if you wanted an informed view about the interest rate outlook, these might be the people you would call on first, which is what Reuters did when it asked the dealers for their forecasts for Treasury bond yields three, six and 12 months ahead.
Back in late September 2010, the dealers came up with…

Assessing the American Jobs Act

Will Congress pass it? What difference could it potentially make? On September 8, President Obama announced a new plan to improve the economy – the $447 billion American Jobs Act, a sequel of sorts to his past economic stimulus proposals. His announced goal: job creation without new taxation.
What’s in this bill? The AJA would try to boost the economy through seven different tactics – extensions and expansions of tax breaks, and infusions of federal dollars.
The current payroll tax holiday would be extended through the end of 2012. The payroll tax would fall to 3.1% - not only for workers, but also for businesses with payrolls of $5 million or less.Companies could get a tax credit as large as $4,000 for hiring the long-term unemployed (people who have been out of work for at least 6 months).Long-term jobless benefits would again be extended.$80 billion of federal money would be assigned to new infrastructure projects (highways, bridges and schools).Bu…

Social Security: Common Mistakes and Misperceptions

I find that retirees often have erroneous beliefs of Social Security and are blind to planning opportunities in claiming their benefits. Elaine Floyd, CFP is one of the foremost experts on Social Security planning within the financial planning community. In a recent newsletter she listed common mistakes both retirees and advisors make in addition to common misperceptions. These are posted below.

3 of the most common mistakes RETIREES make:

Thinking of 62 as being "Social Security age" without realizing the penalties they pay by claiming early benefits. Filing for benefits without understanding all the ramifications as to spousal benefits, survivor benefits, the earnings test, etc. Failing to consider the lifetime value of Social Security over a long life expectancy and how it provides longevity insurance in the event of a very long life.
3 of the most common mistakes ADVISORS make:

Focusing too much on the breakeven age without considering the importance of income at advanced ag…

Will Apple Be the World's Largest Stock?

Stock prices slumped around the world yesterday [Monday, July 18], but shares of Apple Inc. shrugged off worries about a Greek government bond default and record gold prices and surged to an all-time high of $373.80. With a market value of over $344 billion, Apple has already shouldered aside Microsoft to become the world's largest technology firm measured by market capitalization and is now second only to energy giant ExxonMobil among US stocks. It has all happened so quickly that despite its heavyweight stature in the US stock market, Apple shares are still conspicuously absent from the Dow Jones Industrial Average.

Apple's innovative products are the gold standard for personal communication and entertainment gadgets, and the company's fresh approach to store design generates sales-per-square-foot numbers other retailers can only dream about. As the company goes from strength to strength and the billions pile up on the balance sheet, it's worth recalling how uninspir…

The Best of Times, the Worst of Times

Below is a brief article from Weston Wellington of Dimensional Fund Advisors, reviewing the markets over the last year and concurrent headlines from the media. It always helps to keep things in perspective and not get caught up in the financial pornography that is put upon us.

-Kevin Kroskey

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For the twelve-month period ending May 31, 2011, equity investors around the world enjoyed the equivalent of blue skies and bright sunshine while the economic news was partly cloudy at best. Among forty-five developed and emerging-country stock markets tracked by MSCI, all but four had double-digit total returns (in US dollar terms), and twenty-six had returns of 30% or more.

If someone had told us a year ago that global markets would stage such a broad-based rally, we would have been inclined to think that trends in employment, housing, and financial distress were about to take a pronounced turn for the better. It seems hard to argue they have done anything of the sort. Somehow…

Tax Update: Mileage Rates Changed for 2011

The IRS has enhanced mileage reimbursement rates for the second half of 2011 to 55.5 cents for business and 23.5 cents for medical and moving per mile. This is an increase from the first half rate of 51 cents for business and 19 cents for medical and moving per mile.

The full announcement is below. It's nice to get a little help from our friends at the IRS.

To Your Prosperity,

Kevin Kroskey, CFP

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Optional Standard Mileage Rates 
Announcement 2011-40

This announcement informs taxpayers that the Internal Revenue Service is modifying Notice 2010-88, 2010-51 I.R.B. 882, by revising the optional standard mileage rates for computing the deductible costs of operating an automobile for business, medical, or moving expense purposes and for determining the reimbursed amount of these expenses that is deemed substantiated.  This modification results from recent increases in the price of fuel.

The revised standard mileage rates are:
(1) Business = 55.5 cents per mile
(2) Medical and …

Should retirees limit spending to interest and dividends?

Limiting spending to interest or dividends received is a common idea that many retirees have about managing spending in retirement. This idea causes some retirees to reach for yield in both stock and bond investments. In an annual report for Berkshire Hathway, Warren Buffett wrote, "More money has been lost reaching for yield than at the point of a gun."

Pursuing an interest-and-dividend-only strategy is sub-optimal for a multitude of reasons, man of which I'll be explaining in an upcoming article to be posted at the Money & Mind blog. Meanwhile, click on the video below to listen to Ken French of Dartmouth College answer the question whether retirees should limit their spending to interest and dividends.

Deconstructing Berkshire Hathaway and Warren Buffett

Weston Wellington of Dimensional Fund Advisors often displays an ability to make unique observations and simplify complex concepts not unlike Warren Buffet. Below Wellington looks through Berkshire Hathaway's annual report and Buffett's letter to shareholders and makes some unique observations about the Berkshire portfolio and underlying investment principles that the every-day investor can learn from.

To Your Prosperity,

Kevin Kroskey, CFP, MBA

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Berkshire Hathaway released its 2010 annual report last weekend, including the letter to shareholders from Chairman Warren Buffett that is always eagerly awaited by the investment community. We are gratified to find that Mr. Buffett's legendary ability to simplify complex issues remains undiminished and his trademark wit is as sharp as ever.

Financial journalists, eager for clues that might reveal Buffett's thoughts on where markets are headed, fo…

The Media: If It Bleeds It Leads

With spring finally here, I have a bit of a spring in my step. With a bit of a light-hearted, spring-time flair, I thought I'd share a clip from Alonzo Bodden. Alonzo has a comedy special airing on Showtime.

The clip below talks about the 'Fear of Disease.' In today's world, there's always a crisis going on somewhere--financial crises included. At the potential cost of our peace of mind, they are usually showing up in our newspapers, television news, and other media outlets. Remember to keep things in perspective and don't get too caught up in the crises du jour.

Think positively. Think Spring. Laugh a little.

To Your Prosperity,

Kevin Kroskey, CFP, MBA




Healthcare Reform Explained

If you're like me, you find the 1000 page plus Heathcare Reform Act a bit confusing. This nine minute animated movie -- featuring the "YouToons" -- explains the problems with the current health care system, the changes that are happening now, and the big changes coming in 2014, produced by the Kaiser Family Foundation.

Kevin Kroskey, CFP, MBA





Don't File Your Taxes Too Soon

I'd like to remind everyone to not be too anxious to file your taxes. Many taxpayers rush to file their tax returns as quickly as possible. Ordinarily, that’s fine. But if you own mutual funds, don’t file your tax return before March 1.


In past years, revised 1099s were often issued, reclassifying distributions and/or their amounts. This was a huge headache for the investors who had already filed tax returns based on the original documentation. These hapless consumers found themselves forced to redo their returns and file amended tax returns, adjusting the amount they owed or were due in refunds - and paying their tax preparer additional fees to do the extra work.

It looks like 2010 may be the same. Therefore, if you own mutual funds, do not file your tax return before March 1. By then, any amended IRS forms are likely to arrive, potentially helping you avoid the hassle and costs of filing an amended return.

Kevin Kroskey, CFP, MBA



Dodging the Size Premium

Small cap stocks outperformed large cap stocks by a significant margin in most global markets last year but capturing the size premium required both patience and a willingness to ignore the advice from those claiming to identify the best-performing asset classes in advance. US small stocks got off to a strong start last year as the Russell 2000 Index jumped to a gain of 18.6% through April 23, more than double the return of the S&P 500®. But as stock prices wilted during the summer, small caps fell even faster and by August 24th both large cap and small cap indices were down roughly 5% for the year. A surprisingly strong rally during the remainder of the year drove the Russell 2000 up 31.5%, and for the year as a whole it was the best performance for US small stocks since 2003.


The strength in small cap stocks caught a number of financial pundits flat-footed. An article appearing in the Wall Street Journal in mid-November 2009 claimed “small caps aren’t looking that cheap anymore…

New Year's Investment Resolutions

It's that time of year when many of us are thinking about the New Year's resolutions we set for ourselves. This often means committing to improving one's lifestyle by losing weight or exercising more. Some investors could probably benefit from resolutions targeting their financial health as well. Just as many individuals endanger their well-being with bad habits, numerous investors suffer from ill-advised practices that are detrimental to their wealth. Perhaps a set of New Year's investment resolutions will lead to a more prosperous future.

Everybody wants to be healthier, and many people want to be wealthier, but it's just not that easy. Most of us are creatures of habit and discover that making permanent changes in our behavior is surprisingly difficult. We need every possible mental crutch at our disposal to help us adhere to a new regimen; hence we establish mental road signs, such as New Year's resolutions, as behavioral aids.

So, for those who find making…