Interest Rates & Inflation

Inflation and interest rates are linked, and frequently referenced in television and print news reporting. Inflation is the rate at which prices for goods and services rise. In the United States, interest rates – the amount of interest paid by a borrower to a lender – are set by the Federal Reserve (often called "the Fed").

In general, as interest rates are lowered, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase. The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to have less money to spend. With less spending, the economy slows and inflation decreases.

The Federal Open Market Committee (FOMC) meets eight times each year (currently meeting this week) to review economic and financial conditions and decide on monetary policy. Monetary policy is the action taken to affect the availability and cost of money and credit. At these meetings, short-term interest rate targets are determined. Using economic indicators such as the Consumer Price Index (CPI) and the Producer Price Indexes (PPI), the Fed will establish interest rate targets intended to keep the economy in balance. By moving interest rate targets up or down, the Fed attempts to achieve maximum employment, stable prices and stable economic growth. The Fed will tighten interest rates (or increase rates) to stave off inflation. Conversely, the Fed will ease (or decrease rates) to spur economic growth.

Read more: http://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp#ixzz22EKbYzz4

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The Biggest Financial Hurdles Young People Face

You've probably relied on your parents to manage your financial matters for years, and you may not know more than a few basic things about personal finance. Then you graduate from college, and suddenly you're responsible for all kinds of important financial decisions. If you want to manage your finances responsibly, you'll need to overcome the following challenges.

Financial Illiteracy

"The crying need for more financial literacy in Gen Yers cannot be overstated," says consumer finance expert Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network.

"The good news is that managing finances is not an innate skill, but something that is learned like math, reading and writing."

Unfortunately, financial literacy is rarely taught in schools. Gallegos says that Gen Yers must take the initiative to educate themselves about topics such as budgeting and living within one's means, paying bills on time, managing credit and debt, making regular contributions to savings, tackling student loans, and planning for retirement. Following just one good online or print resource can provide the foundation to learn these basics, he says.

Learning to Invest and Take Risks

The economy's performance over the last few years has had a major impact on Gen Yers who haven't been able to find jobs or who have watched their parents' investment returns disappear.

"Unfortunately, the economic downturn has caused many young adults to fear investing in the stock market," says Rachel Cruze, professional personal finance speaker and daughter of financial expert Dave Ramsey. "But you have to think longterm when investing in the stock market. The past few years have been rough, but over time the stock market has made money. If you begin investing early and often you'll be able to build wealth through your investments," she says.

Brian Ullmann, CFP and wealth manager at Ford Financial Group, an independent advisory firm in Fresno, Calif., also says that market turmoil has impacted 20-somethings' investment strategies.

"Our younger clients now have a much lower tolerance for risk and have more conservative portfolios. In fact, we have clients in their 20s who wish to have their portfolio positioned for someone twice their age," he says. "One of our concerns is that this new, more conservative positioning for Gen Y clients is a permanent change and one that could lead them to miss out on opportunities in the future."

The Bottom Line

To overcome the challenges they face, today's young adults need to educate themselves about personal finance, manage the student loan debt they've already incurred, avoid or minimize additional debt, learn basic investment skills, and not be afraid to choose their own paths. Also, as youth are so often advised, they need to practice patience.

"Remember that you're still young and be content with what you have," says Cruze. "Work hard so that you're able save up to make large purchases that you can afford without having to pay interest."

Read more: http://www.investopedia.com/financial-edge/0712/The-Biggest-Financial-Hurdles-Young-People-Face.aspx#ixzz227kxVZPN

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Best days after worst days

History has shown that some of the market's best days occurred almost immediately following some of its worst days. 

According to research by BMO Capital Markets, "Since 1970, 45% of the best 40 days came within one week of a worst day, 55% came within two weeks of a worst day and 62% came within one month of a worst day."

Source:  BMO Capital Markets, 25 May 2012

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Timing the market--can be a person's enemy

Timing is everything in life, or so the saying goes. But when it comes to investing, timing--or attempting to time the market--can be a person's enemy. No one likes to be left out of a good thing, so when we hear of a hot stock or mutual fund, we want a piece of the action. But usually by the time we've heard about it, it's too late, and the gains that made the investment so attractive in hindsight lead us into an investment that underperforms once we get on board.

Two common themes that emerge are investors pile into funds with excellent track records that are unable to repeat those strong performances, and investors abandon funds after sharp downturns and thus missing out on the subsequent rebound.

Extracted from Adam Zoll, Morningstar

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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Beware the 'Other' IRA Tax Penalty

By Christine Benz, Morningstar

Retirees who are taking required minimum distributions from their IRAs and 401(k)s well know the importance of making those withdrawals on time. If they miss a distribution, they'll not only owe any taxes that were due on that withdrawal, but they'll also owe a penalty equal to 50% of the amount they should have taken but didn't. Given the size of the penalty, and the fact that many retirees need every bit of income they can get, this isn't something you want to let happen.

Less frequently discussed but also important to keep on your radar is the 6% tax that's levied on what are called "excess contributions" to an IRA--the amount by which an IRA contribution exceeds the maximum allowable amount an individual was able to put in for that tax year.

Note that the penalty only applies to the amount by which your contribution exceeds the allowable threshold. The contribution limits for 2012 are $5,000 for individuals under 50 and $6,000 for those older than 50; the maximum contribution cannot exceed an individual's earned income amount for the year.)

Of course, the easiest way around the excess contribution penalty is to avoid it in the first place, by making sure your contribution amount and type is allowable at the time you make it. If you have any questions about your eligibility to contribute to a given account type, ask your tax or investment advisor.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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Are Self-Directed IRAs Too Good to Be True?

By John Waggoner, USA Today

IRAs can even be used to buy rental properties, as long as you don't rent to yourself.

Just because you can do something doesn't mean that you should. You may be perfectly capable of cross-breeding trout with electric eels, for example, but you probably shouldn't do it unless you're very angry at fishermen.

You can invest in a wide array of things via your individual retirement account, aside from the usual stocks, bonds and mutual funds. Office buildings? Sure. Small businesses? Check. Unregistered securities? Yep.

And you can invest in all of these through self-directed IRAs. Should you? For most people, no. But for a few people, it can make sense.

An IRA is simply a tax-deferred retirement account, and has very little to do with what you decide to put in that account. You can have an IRA stuffed with stocks or bulging with bonds. You can't put most collectibles in an IRA, or whole life insurance, or subchapter S corporations. (You can have U.S. gold coins in an IRA, but that's a story for another day.)

A self-directed IRA allows you to invest in things other than securities registered with state or federal authorities. For example, you can use the assets in a self-directed IRA to buy a rental property, or even as the down payment for a mortgage on a rental property.

There are restrictions, however, on self-dealing: You can't rent the place to yourself, for example. And you must have a qualified third-party custodian for the IRA.

Self-dealing restrictions on investing in small businesses — especially sole proprietorships — are also complex, and you should see a tax lawyer before you put IRA money into a small business. "Self-directed IRAs have helped fund thousands of small businesses that otherwise wouldn't be there," says Tom Anderson, president of the Retirement Industry Trust Association, a trade group.

So. You can put many types of investments into a self-directed IRA. What are the drawbacks?

The most obvious is that while the IRA will shelter gains on transactions inside the account, you'll lose other tax benefits. If you lose money, you can't deduct your losses , and you won't get capital gains treatment on profits when you make withdrawals.

Another problem is making sure you're putting your IRA in a good investment. Yes, owning an office building can be lucrative. Have you done it before, and do you understand the deal?

You also need to know if it's legit. Your IRA trustee won't check your investment for you. It will just give you statements.

And this brings us to the biggest problem with self-directed IRAs: the potential for fraud. The Securities and Exchange Commission and the North American Securities Administrators Association put out an investor alert on self-directed IRA fraud in September.

The alert makes for interesting, if sad, reading. The Missouri Securities Division, for example, filed orders against Stephen Gwin in 2007 for misleading senior citizens into investing in unregistered securities in self-directed IRAs he controlled. He sold them at — what else? — free lunch seminars. In 2010, the SEC shut a Ponzi scheme that took $9.2 million from self-directed IRAs.

Anderson points out that the regulated securities industry has seen more fraud, and that's true. The regulated securities industry is also far larger.

"Self-directed IRAs aren't bad, they aren't illegal," says Matt Kitzi, Missouri's Commissioner of Securities. But scams involving self-directed IRAs are becoming more common, he says.

So if you are tempted by a self-directed IRA, be wary. If someone offers a guaranteed return, or a very high return, run. Avoid anyone who pushes you to invest — or offers a free lunch, for that matter. Check the person offering the investment with the SEC and your state securities administrator. And notify your securities administrator the moment something seems awry: Your chances of getting money back in a scam decrease by the minute.

Lots of people are looking for alternatives to stocks, and that's understandable. But some investments don't deserve your money just because they're there. If you're not willing to spend time checking a self-directed IRA, don't do it.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 9951 Atlantic Blvd, Suite 323, Jacksonville FL 32225

Tax Shelters for All

By Brent Arends, Smart Money

Is your portfolio ready for higher taxes?

The Bush-era tax cuts might well be extended again this year, at least for most taxpayers. But the long-term picture is less rosy.

Today's tax rates on investments are low by historical standards, with long-term capital gains and stock dividends taxed at a maximum rate of 15% each, versus 28% and 39.6%, respectively, at one point during the 1990s.

It is hard to see this lasting. Without sharp tax increases, says the Congressional Budget Office, the national debt will quickly skyrocket to unsustainable levels -- even after accounting for budget cuts. Meanwhile, two new taxes related to the health-care overhaul will take effect next year on higher-income taxpayers: a 3.8% tax on net investment income and a 0.9% increase in the Medicare tax.

Here are some ways to shelter your assets before new rates kick in.

Sell your winners early

The usual advice on taxes is to defer them as long as possible, but if rates are going to rise, you might want to stand that advice on its head.

It might be better to sell your winners before rates rise. Better to pay 15% tax on your big Apple profits today than, say, 25% down the road. If you want to keep the stock, you can always buy it back later.

Buy municipal bonds

Muni-bond income is generally free from federal taxes and from taxes in the issuing municipality. That is a big advantage over corporate and Treasury bonds, whose coupons are heavily taxed as ordinary income.

Usually, munis offer lower gross yields than the equivalent taxable bonds, but not at the moment: Thirty-year triple-A-rated municipals yield about 3.5% today, according to muni specialist FMS Bonds. Thirty-year Treasurys yield just 2.6% -- or 1.7% after deducting 35% tax.

Munis aren't quite as "safe" as Treasurys, but top-rated munis are nearly so. You can buy individual bonds, or a fund: Options include the Vanguard Intermediate-Term and Vanguard Long-Term Tax-Exempt funds, or the iShares S&P National AMT-Free Municipal Bond exchange-traded fund.

Buy a home

The best tax shelter available to Main Street investors right now might just be your primary residence. When you sell, your first $250,000 in capital gains is tax-free. That rises to $500,000 for joint filers.

If you already own, you can up your investment by remodeling in a manner that adds value, or by trading up.

This wouldn't make sense if real estate were expensive: Few who bought six years ago have any capital gains to protect. But house prices nationwide are at their cheapest levels, compared with rents or household incomes, since the 1990s. A homeowners can finance their purchases at 4%.

If it is cheaper to own than to rent in your area and rents are rising, then real estate is probably a good deal.

Max out your Roth IRA

Investors have access to a range of tax-sheltered accounts. In an era of rising taxes, the best one looks like the Roth individual retirement account. You contribute with money after paying today's tax rates. You then withdraw money tax-free down the road, when rates presumably will be higher.

There are two ways to max out your Roth this year. First, you can contribute $5,000 per person -- $6,000 if you are 50 or older. Second, you can convert your regular IRAs to Roth accounts. You will have to pay income tax on the money converted.

Check the math on your 401(k)

The standard financial advice has been to max out your 401(k) contributions. But if taxes rise sharply ahead, it may not be that simple.

Contributions to a 401(k) are tax-deductible today, but all the money you withdraw -- not just the investment gains -- will be subject to income tax. This makes sense only if you think your tax rate will be lower in retirement than it is today. Many middle-class investors could face big, unexpected tax hits on their 401(k) withdrawals when they retire.

A small number of employers offer a Roth 401(k). These function like a Roth IRA: You contribute with after-tax dollars today, but future withdrawals are tax-free. You also may have the chance to convert your current 401(k) account into a Roth.

Finally, an obvious, but important, reminder: Tax laws are tricky, and everyone's circumstances are different. Check with your tax professional before making a move.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 9951 Atlantic Blvd, Jacksonville FL 32225

Demand for 401(k) Advice Grows

By Jerry Gleeson   

Employees with 401(k) or other defined contribution plans are showing less interest in managing their investments, and more interest in having professionals do it for them, new data from Vanguard shows. But the trend isn’t likely to benefit financial advisors, at least in the short run.

In its recently released annual report, How America Saves 2012, Vanguard said that last year 33 percent of participants in its 3.4 million defined contribution plans were invested in professionally managed allocation programs, up from just 9 percent at the end of 2005.

Target date funds—baskets of securities whose asset allocation is built around the expected date of the owners’ retirement—are leading the growth; 24 percent of people in DC plans were in a single target date fund, while 6 percent were in a single balanced fund, and 3 percent were in a managed account advisory program.

Part of the reason for why managed solutions have grown so sharply over six years is the growing practice among employers to automatically enroll new workers into 401(k)s. TDFs have largely become the investment option of choice for plan sponsors when they put workers into those plans.

Some observers view the growth of TDFs as a positive response to a long-standing criticism of 401(k)s—they force investment decisions on people who may lack the expertise to do it well. 

The hunger for advice is manifesting itself in other venues. Fidelity Investments said that last year it saw a 45 percent increase in the number of employees in 401(k)s who used online webinars on investing; the number of participants who attended workplace workshops was up 20 percent, it added.

The share of plans that offer managed account advice is low—just 14 percent at Vanguard. And that advice already is offered through Vanguard financial planners or through Financial Engines, the third-party advisor founded by Nobel laureate Bill Sharpe.

And plan sponsors sometimes are loathe to bring in outside advisors, since the sponsors are required to vet the people who provide such advice because they have a fiduciary responsibility for the retirement plan.

But advice matters, Financial Engines says in a report last fall that it prepared with human resource consultant Aon Hewitt. Investors in 401(k) plans who obtained help—either by investing in TDFs, or using managed accounts or online advice—on average realized returns of nearly 3 percentage points greater than those who didn’t, net of fees, the report said. It reviewed workers at eight companies over a five-year period, through 2010.

D2 Capital Management offers 401(k) review consultations for individuals with defined contribution plans.

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Do Fund Costs Matter?

Registered Investment Advisors offer distinct advantages to clients when it comes to saving their clients money.  Typically, mutual funds sold by financial services companies incur sales loads to the client as well as inflated expense ratios (mutual fund company management fees).  When combined, these costs reduce the return on investment. 

Registered Investment Advisors have access to no-load versions of the exact same funds and in many cases the expense ratio is also reduced.  As a result, all of the client's money is fully invested from the start. 

For example, the A shares of the popular American Funds EuroPacific Growth Fund, sold by brokers have a maximum sales load fee of 5.75% and a .84% annual expense ratio.  So a $1000 "invested" only results in $942 actually being invested.  Every year you lose almost 1% from your overall performance.  The equivalent shares offered through a Registered Investment Advisor has no sales load and an annual expense ratio of just .58%.  One thousand dollars invested is truly $1000 invested.

An investment in the A share class, with the maximum front-end fee, would have a three-year annualized return of 2.79%, ranking in the bottom half of all foreign large-cap funds.

The same investment in the no-load equivalent shares would have a return of just over 5%, ranking in the top quartile of the fund category, according to Morningstar Inc.

Extracted from Investment News

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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No-pain investors miss out on gains

By Chuck Jaffe, MarketWatch

If you want to see how twisted the investment world is right now, consider that many investors — both individuals and institutions — are accepting reward-free risk.

Normally, the search is for risk-free reward — return investors can get without putting their money in harm’s way.

The difference: People are willing to settle for nothing on their cash, so long as they can be confident they will get their money back.

In the U.S., with the 10-year Treasury at record lows, a Treasury buyer facing inflation of 2% going forward is virtually guaranteed of losing purchasing power over the next decade.

The ultra-safe havens are even worse, with the average retail money-market fund yielding 0.06%. At that rate of return, it would be 1,200 years before an investment made today doubles in value. Even if you go for the top-yielding issues in the country, you will goose your return to about 0.1%; congratulations, your money now doubles in 720 years.

In fact, a lot of the traditional advice for savers has been tossed on its ear, simply because the results of such best practices are so disappointing. Shopping for a better money-market fund yields extra pennies, and going up the risk scale to online savings accounts or ultra-short bond funds or longer-term certificates of deposits only brings extra nickels.

Without big money at stake — tens of thousands of dollars for individual investors — it’s not surprising that so many people are finding the payoff for going up the risk spectrum isn’t worth it. Thus, they settle for a reward-free approach to risk.

When some investors are pursuing a better income stream through dividend-paying stocks, they have to be willing to accept market risk. It’s not like you can trade low bond yields for higher stock returns and not climb the risk ladder.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 9951 Atlantic Blvd, Suite 323, Jacksonville FL 32225

How Women Can Improve Their Financial Standings

The good news is that women's pay is on the rise. The gender pay gap may not have entirely closed, but women's incomes are rising. However, while women are gaining on men's earnings, they are still behind men in terms of financial planning. Research conducted by the bank HSBC highlighted that women are most at risk of falling short of income in retirement. Where women are actively undertaking financial planning, the focus is more on short-term financial issues such as building up short-term savings and managing the household budget. So, what should women be doing to ensure that they are on solid financial footing and that their futures will not see them short of cash? We'd suggest women save more, start saving earlier, stay involved in their financial planning and don't always play it safe.

Save More

Statistically women live longer, so it is even more important that they have savings in place for the future. Because women tend to take time out of the workplace to have children and look after families, their Social Security benefits are often less than their male counterparts. This means that private saving is even more important. Women should aim to save in three ways: Social Security, a 401(k) pension or retirement saving plan, and personal savings.

Start Earlier

It is never too early to start saving for your future. At whatever stage in your life you are at, you should start planning for your own financial security. In fact, this is where women lag behind men – they don't make a plan for the future. One of the key findings in the HSBC research was that while the majority of men had a clear financial plan to guide their financial decisions, just 44% of women said that they had a plan for the future.

Women should realize that their savings will build substantially over the years. If you could grow your savings at 10% each year, saving 10% of a $50,000 salary from your mid-20s would result in over $2 million at age 65 for retirement. Start saving today and see compound interest build that amount over the years.

Stay Involved

Women may hand over their financial security and planning to their partners, but it is wiser to stay involved in the process to ensure a solid understanding. This is especially crucial in view of the fact that women tend to outlive their husbands and will become solely responsible for their own financial planning.

The Women's Institute for a Secure Retirement found that women are much more likely to be alone in old age, and elderly women are more likely to be poor. The percentage of the female population over age 85 who are widows is more than 85% compared to about 45% of men. At the present time, four out of 10 women over 65 depend on Social Security for virtually all of their income, which is a worrying situation that must be improved.

Don't Always Play It Safe

A big difference between men and women's finances is their attitude to risk. While only 25% of men consider themselves as 'risk averse' investors, nearly 40% of women shun higher-risk investments such as stocks.

Now, risk is not always good. Risking all of your savings is a dangerous and ill advised strategy. However, the no-risk options regularly have low interest rates. If the interest on your savings account doesn't beat the cost of inflation, then your investment is actually losing money. Striking a balance of risk-free and calculated-risk investing will mean that you get the best of both worlds and are able to reap the rewards of profitable investment.

The Bottom Line

Encouragingly, there are positive signs appearing among younger women. Young women are more engaged in planning their financial future than women from older generations. One of the most important things women can do is take charge of their retirement immediately. They shouldfind out as much as they can. How much will they need to live on? What sources of income are already available to them? They should talk to their spouse (if they have one), find out about current and past employers, and check on their Social Security benefit. Even if they are worried what the answers might be, it's better to find out now than waiting until they're ready to retire and discovering bad news then. Starting to plan early gives you options later in life. Retirement is meant to be about reaping the rewards of a lifetime's work – so make sure a plan is in place to make it just that.

Read more: http://www.investopedia.com/financial-edge/0712/How-Women-Can-Improve-Their-Financial-Standings.aspx#ixzz20QLOT6xz

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There are plenty of people who will take your money...

...if you don't understand what they're doing with it.

There are many excellent financial advisors out there, but if you don't know the first thing about investing, you won't know how to separate the good ones from the mediocre ones and the downright unethical ones. At a bare minimum, you should know how to choose a professional who you can trust to act in your best interest.

For example, you should know that Registered Investment Advisors are legally required to put the client's interests first, but brokers are not. You should also understand how your advisor is compensated and how they select recommended assets for their clients.

A problem you could encounter with a broker is excessive trading in your account, since each buy and sell order generates a commission. This practice isn't in your best interest, since it doesn't take your investment goals into account and results in you paying excessive trading fees. Churning can leave you with less money than you started out with.

Another problem with brokers is that they sometimes push investments on clients that are in the brokerage firm's best interest because the firm holds a position in that investment. Brokerage firms can also charge a number of fees that will eat into your investment returns. These fees include inactivity fees, transfer fees, account maintenance fees and minimum equity requirement fees. As if that weren't enough, full-service brokers are expensive. Their commissions are several times what you'll pay to buy and sell stocks on your own through a discount brokerage.

Investment advisors, on the other hand, are not only required to act in your best interest, but they're also more likely to make buy and sell recommendations that are objective because they aren't paid for every transaction you agree to. These advisors also don't have incentives to push you into certain investments, regardless of whether they are your best option.

Read more: http://www.investopedia.com/financial-edge/0712/3-Reasons-Why-You-Need-To-Understand-Investing.aspx#ixzz20FKaKyh9

D2 Capital Management is a Fee-Only Registered Investment Advisor

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Do You Know How Your Advisor Gets Paid?

By Christine Benz, Morningstar

Would-be consumers of financial advice often hear they should inquire about the advisor's compensation structure. But even that's a mess. One key area of confusion? What it means to be a fee-based advisor, versus one who's fee-only or commission-only. Some investors incorrectly assume that the presence of the word "fee" means that fee-based advisors are free of the conflicts of interest that can affect commission-based brokers. In fact, of the three major compensation structures for financial advice, only fee-only advisors avoid commission-based products altogether, along with the potential conflicts of interest that business model presents.

Because understanding the different types of advisor compensation is central to finding the right advisor, here's a review of the three major categories. If you're interviewing advisors, it's reasonable to ask them to classify themselves into one of these groupings. And if an advisor refuses to detail compensation, or worse yet, says that their advice is free, that's a huge red flag and you should find someone else.

Fee-Only

Fee-only advisors do not receive commissions--upfront, ongoing, or otherwise--for selling specific products. Rather, they charge their clients fees for whatever services they personally provide. The big attraction of the fee-only model is that it removes potential conflicts of interest: Because the fee-only advisor has no vested interest in putting you in one product or another, you can feel confident that any recommendations are being made at arm's length. Fee-only advisors, as registered investment advisors, are also required to uphold the fiduciary standard, meaning they must put their clients' interests ahead of any other interest, including their own.

Even within the fee-only group, however, there are big variations in compensation setups. Some fee-only advisors might charge a flat fee for a certain type of engagement, much as an attorney might charge you a flat fee to execute estate-planning documents or a certified public accountant will charge you a fixed sum to prepare your tax return.  Fee-only advisors who work for a flat fee won't typically require a specific investment minimum.

Other fee-only advisors work on an hourly basis. The complexity of your situation and what you're seeking from the advisor--a full-boat financial plan or help with a targeted issue--will determine your total bill. Hourly fees can run in the neighborhood of $150-$200 an hour or more, but the hourly model can be the most cost-effective way to pay for advice if you don't need a lot of hand-holding on an ongoing basis.  And as with advisors who charge a flat fee for a specific set of services, planners who work on an hourly basis won't typically have any investment minimums.

Still other fee-only advisors charge clients a retainer--a fee on a monthly or quarterly basis--or ongoing fees as a percentage of their investment assets on an annual basis. For advisors who charge a percentage of assets per year, 1% is a common rate, though rates can swing higher or lower depending on the advisor and the client's asset level. Under this setup, the advisor will provide customized financial-planning guidance as well as specific recommendations about when to buy and sell securities.

Commission-Only

In contrast with fee-only advisors, commission-only brokers receive compensation when you purchase a product--a stock, fund, or insurance product. Such brokers often provide specialized research to augment their recommendations and, if they work for a large brokerage firm, might also have access to traders, analysts, and other professionals. However, it's worth noting that most such brokers aren't there to provide soup-to-nuts financial planning; rather, they're focused on a specific area of expertise--insurance planning or investments, for example.

Moreover, brokers who earn commissions might have more incentive to recommend certain products rather than others, or to trade more than what is ideal. That stands in contrast with the aforementioned registered investment advisors who work on a fee-only basis. In fact, commission-based brokers are held to a different standard when recommending products to their clients. Products that brokers recommend must fit with the so-called suitability standard, meaning that the products must be suitable for their clients, based on the information the client has provided. But they needn't necessarily be the best product for their client; there might be cheaper or better options out there.

Fee-Based

Fee-based advisors use a combination of the two previous models. Although they may charge fees for financial-planning services, much as fee-only advisors do, they may also recommend products on which they earn commissions, such as mutual funds or insurance products. Some fee-based advisors avoid double-dipping by charging either fees or commissions (not both), depending on the client. But some fee-based advisors do not, meaning that working with them has the potential to be more costly than either the fee-only or commission-only route. Thus, when interviewing a fee-based advisor, it's fair to ask how he or she handles this issue.

Because they might have incentives to sell you certain products, it's also worth noting that fee-based advisors aren't necessarily free of the conflicts of interest that can affect commission-only brokers. Moreover, some fee-based advisors are governed by the fiduciary standard while others operate under the suitability standard that commission-based brokers do. To further complicate matters, some fee-based advisors operate under the suitability standard for some parts of their business and the fiduciary standard in others. Thus, this is another area to home in on if you're conducting due diligence on fee-based financial advisors.

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D2 Capital Management is a Fee-Only Registered Investment Advisor

Should Retail Investors Return to Stocks?

By Jonnelle Marte, Smart Money

Have retail investors completely bailed from the stock market? Just about, analysts say.

The European financial crisis and the poor employment outlook prompted global investors to pull $41.6 billion from equity funds in the second quarter. If those outflows seem mild given the volatility of the past few months, it’s because the majority of retail investors may have already dumped their stocks, says Cameron Brandt, a global markets analyst for EPFR Global, a research firm. Consider: investors yanked $54 billion from stock funds last August alone, following the Standard& Poor’s credit rating of U.S. debt and heightened concerns about the debt crisis in Europe.  “There isn’t a lot of retail money left in the market,” says Brandt.

Indeed, retail investors keep fleeing stocks at a precisely a time when the “smart money” from institutional investors is going in, data shows. This year through July 4, U.S. stock mutual funds—which are mainly used by retail investors—lost $3.1 billion, according to fund researcher Lipper. However, stock exchange-traded funds, which can be a gauge of institutional activity in the short term, took in $35.2 billion for that same time period, says Tom Roseen, an analyst with Lipper. Retail investors are instead pouring money into cash and bonds, with $125.8 billion flowing into taxable bond mutual funds this year.

Pulling out of the market may be a terrible strategy, advisers say. Scott Wren, senior equity strategist for Wells Fargo Advisors, says retirement savers need to hold stocks longer as life expectancies—and retirements—grow longer. With yields near record lows, bonds often don’t offer the yields or returns retirement savers need in order to cover their living expenses. Investors searching for high yield might take on too much interest risk by holding longer-dated bonds, or too much credit risk by holding lower-rated bonds, Wren says. “One of the best ways to generate income is in stocks.”

To be sure, some stock sectors are getting love from retail investors. Dividend stock mutual funds and foreign stock mutual funds, for example, collected $12 billion and $21.6 billion, respectively, so far this year, according to Lipper. And some of the movement out of stocks and into bonds seen over the past few years could be an effort by retail investors to diversify their holdings—not to avoid stocks entirely. Much of the outflows are coming from large-cap stock funds, says Roseen, an area they may have over-allocated to during the boom years.

Advisers say there are smart ways to ease into stocks now. Andrew Feldman, a financial adviser in Chicago, says investors who don’t have exposure to Europe should consider using the market dip from the second quarter as an opportunity to invest in a diversified foreign stock fund—a move he recommends holding for the long term. Feldman uses the $6.7 billion Vanguard FTSE All-World ex-US fund (VEU), which invests 43% in Europe and 26% in emerging markets, and recommends investing up to a third of one’s portfolio in foreign stocks.

Wren, of Wells Fargo Advisors, recommends using mutual funds and ETFs to get broad exposure to dividend paying stocks. He also suggests allocating more money to the stock sectors that should benefit most from the growing economy, such as consumer discretionary, information technology, telecommunication and materials. “We think there is potential for growth and we want to be on that,” says Wren.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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5 Ways To Double Your Investment

There's something about the idea of doubling one's money on an investment that intrigues most investors. It's a badge of honor dragged out at cocktail parties, a promise made by over-zealous advisors, and a headline that frequents the cover of some of the most popular personal finance magazines. Where this fixation comes from is anyone's guess.

Perhaps it comes from deep in our investor psychology - that risk-taking part of us that loves the quick buck. Or maybe it's simply the aesthetic side of us that prefers round numbers - saying you're "up 97%" doesn't quite roll off the tongue like "I doubled my money." Fortunately, doubling your money is both a realistic goal that investors should always be moving toward, as well as something that can lure many people into impulsive investing mistakes. Here we look at the right and wrong way to invest for big returns.

The Classic Way - Earn It Slowly

Investors who have been around for a while will remember the classic Smith Barney commercial from the 1980s, where British actor John Houseman informs viewers in his unmistakable accent that they "make money the old fashioned way - they earn it." When it comes to the most traditional way of doubling your money, that commercial's not too far from reality.

Perhaps the most tested way to double your money over a reasonable amount of time is too invest in a solid, non-speculative portfolio that's diversified between blue-chip stocks and investment grade bonds. While that portfolio won't double in a year, it almost surely will eventually, thanks to the old rule of 72.

The rule of 72 is a famous shortcut for calculating how long it will take for an investment to double if its growth compounds on itself. According to the rule of 72, you divide your expected annual rate of return into 72, and that tells you how many years it takes you to double your money.

Considering that large, blue-chip stocks have returned roughly 10% over the last 100 years and investment grade bonds have returned roughly 6%, a portfolio that is divided evenly between the two should return about 8%. Dividing that expected return (8%) into 72 gives a portfolio that should double every nine years. That's not too shabby when you consider that it will quadruple after 18 years.

The Contrarian Way - Blood in the Streets

Even straight-laced, even-keeled investors know that there comes a time when you must buy - not because everyone is getting in on a good thing, but because everyone is getting out. Just like great athletes go through slumps when many fans turn their backs, the stock prices of otherwise great companies occasionally go through slumps because fickle investors head for the hills.

As Baron Rothschild (and Sir John Templeton) once said, smart investors "buy when there is blood in the streets, even if the blood is their own." Of course, these famous financiers weren't arguing that you buy garbage. Rather, they are arguing that there are times when good investments become oversold, which presents a buying opportunity for brave investors who have done their homework.

The Safe Way

Just like how the fast lane and the slow lane on the freeway eventually lead to the same place, there are both quick and slow ways to double your money. So for those investors who are afraid of wrapping their portfolio around a telephone pole, bonds may provide a significantly less precarious journey to the same destination.

But investors taking less risk by using bonds don't have to give up their dreams of one day proudly bragging about doubling their money. In fact, zero-coupon bonds (including classic U.S. savings bonds) can keep you in the "double your money" discussion.

For the uninitiated, zero-coupon bonds may sound intimidating. In reality, they're surprisingly simple to understand. Instead of purchasing a bond that rewards you with a regular interest payment, you buy a bond at a discount to its eventual maturity amount. For example, instead of paying $1,000 for a $1,000 bond that pays 5% per year, an investor might buy that same $1,000 for $500. As it moves closer and closer to maturity, its value slowly climbs until the bondholder is eventually repaid the face amount.

One hidden benefit that many zero-coupon bondholders love is the absence of reinvestment risk. With standard coupon bonds, there's the ongoing challenge of reinvesting the interest payments when they're received. With zero coupon bonds, which simply grow toward maturity, there's no hassle of trying to invest smaller interest rate payments or risk of falling interest rates.

The Speculative Way

While slow and steady might work for some investors, others may find themselves falling asleep at the wheel. They crave more excitement in their portfolios and are willing to take bigger risks to earn bigger payoffs. For these folks, the fastest ways to super-size the nest egg may be the use of options, margin or penny stocks.

Stock options, such as simple puts and calls, can be used to speculate on any company's stock. For many investors, especially those who have their finger on the pulse of a specific industry, options can turbo-charge their portfolio's performance. Considering that each stock option potentially represents 100 shares of stock, a company's price might only need to increase a small percentage for an investor to hit one out of the park. Be careful and be sure to do your homework; options can take away wealth just as quickly as they create it.

For those who want don't want to learn the ins and outs of options but do want to leverage their faith (or doubt) about a certain stock, there's the option of buying on margin or selling a stock short. Both of these methods allow investors to essentially borrow money from a brokerage house to buy or sell more shares than they actually have, which in turn can raise their potential profits substantially. This method is not for the faint-hearted because margin calls can back your available cash into a corner, and short-selling can theoretically generate infinite losses.

Lastly, extreme bargain hunting can quickly turn your pennies into dollars. Whether you decide to roll the dice on the numerous former blue-chip companies that are now selling for less than a dollar, or you sink a few thousand dollars into the next big thing, penny stocks can double your money in a single trading day. Just remember, whether a company is selling for a dollar or a few pennies, its price reflects the fact that other investors don't see any value in paying more.

The Best Way to Double Your Money

While it's not nearly as fun as watching your favorite stock on the evening news, the undisputed heavyweight champ of doubling your money is that matching contribution you receive in your employer's retirement plan. It's not sexy and it won't wow the neighbors at your next block party, but getting an automatic 50 cents for every dollar you deposit is tough to beat.

If It's Too Good to Be True …

There's an old saying that if "something is too good to be true, then it probably is." That's sage advice when it comes to doubling your money, considering that there are probably far more investment scams out there than sure things. While there certainly are other ways to approach doubling your money than the ones mentioned so far, always be suspicious when you're promised results. Whether it's your broker, your brother-in-law or a late-night infomercial, take the time to make sure that someone is not using you to double their money.

Read more: http://www.investopedia.com/articles/stocks/09/five-ways-double-investment.asp#ixzz1zqgLhswP


The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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10 Predictions for 2012: Midyear Update

By Bob Doll, Chief Equity Strategist for Fundamental Equities, Blackrock 

 

1. The European debt crisis begins to ease even as Europe experiences a recession.  The second half of this prediction has already come true as Europe is mired in a recession. The recession, so far at least, looks to be reasonably mild for core Europe though more significant for peripheral Europe. The critical question is whether or not the debt crisis will begin to ease and obviously the jury is out on that one. If progress can be made in terms of promoting a stronger fiscal union, we should see some easing in overall conditions. 

2. The US economy continues to muddle through yet again.   We have been calling for a 2% real growth rate in the United States, and that appears to be about where we are. We would categorize such growth as acceptable but not exceptional, and it appears that US growth will be muddling through for some time.

3. Despite slowing growth, China and India contribute more than half of the world’s economic growth.  Both China and India have been slowing in terms of economic growth. China has, so far, been able to show some resilience while India, in contrast, has weakened more than most expected. In any case, however, given that there is little robust growth anywhere in the world, China and India do appear to be set to generate more than half of the world’s growth this year.

4. US earnings grow moderately, but fail to exceed estimates for the first time since the Great Recession.  This is another prediction that appears on track. Earnings have been growing at a decent pace this year, but it does seem that expectations were too lofty at the beginning of the year.

5. Treasury rates rise and quality spreads fall.  At this point, we would score this one as half-correct. Notwithstanding a noticeable spike in yields that occurred in the spring, Treasury rates are lower now than they were at the beginning of the year as investors have remained highly risk-averse. Spreads for other fixed income assets, however, have fallen as credit sectors of the fixed income market have performed reasonably well

6. US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession.  Price-to-earnings ratios have advanced since the beginning of the year and should that trend continue, we’ll get the second half of this one right. For the first half to be correct, the S&P 500 Index would need to close the year at 1,350 or higher. After a strong last trading day of the second quarter, that’s about where we are and we think stocks have a good chance of advancing further in the second half of the year.

 

7. US stocks outperform non-US markets for the third year in a row.  Thanks in large part to solid earnings and strong cash flow yields, US stocks have been outperforming so far in 2012. On a year-to-date basis, US stocks are up around 7%, while non-US markets are down slightly.

8. Company dividends and share buybacks hit a record high.  We haven’t gotten there yet, but this prediction has a good shot. Companies are still hoarding extremely high levels of cash and we expect they will continue to deploy that cash in a variety of shareholder-friendly ways.

9. Healthcare and energy outperform utilities and financials.  We are on the wrong side of this prediction at the midway point of the year. On an equal-weighted basis, healthcare and energy are up only modestly, while utilities and financials are up in the mid-single digits.

10. Republicans capture the Senate, retain the House and defeat President Obama.  This prediction remains a huge wildcard, with questions over the economy, the budget and the looming fiscal cliff likely deciding this year’s election results. Regarding Congress, we think there is a better than 50% chance that the Republicans capture the Senate and a much better than 50% chance that they retain the House. At this point, the presidential election looks as if it could go either way.

A “Muddle-Through” World Should Still Allow Stocks to Outperform.  Although conditions have gotten tougher as the year has progressed, the summary view we offered at the beginning of the year has not changed. We believed in January that conditions should be “good enough” for stocks to outperform in 2012, and we are holding to that view.

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Rainy-Day Savings Drying Up for More Americans

By Katie Little, CNBC

Americans are seeing more zeros in their bank accounts these days — and not the good kind.
As Americans struggle to put the economic downturn behind, many appear to be going the wrong way. In one key measure of security, the number of Americans with no emergency savings rose to 28 percent of Americans, slipping from 24 percent of the year before, according to a new Bankrate.com survey.

Only a quarter of those surveyed have squirreled away sufficient savings for six months or more, the amount that financial advisors suggest to have on hand in the event of an emergency.

“We have a long and storied history in this country of spending and keeping up with the Joneses and not making savings a priority,” said Greg McBride, Bankrate.com’s CEO. “I mean, look, this is not confined to emergency savings. Same is true when we look at retirement savings.”

Stagnant wages and creeping household expenses have not helped the savings rate, McBride told CNBC's "Closing Bell."

"For 30 years, we’ve seen a perpetual decline in the savings rate, the rate of income that people are putting away for a rainy day, and we’re seeing the evidence of that now where only one in four American households actually have an adequate savings cushion," he said. "It just has to become a priority by paying yourself first.”

The survey’s findings come amid mixed news for the economy. Unemployment inched higher in May for the first time in nearly a year to hit 8.2 percent while a new report from the Federal Reserve painted a bleak picture of the median American family’s net worth.  The median family’s net worth was about $77,000 in 2010, down from roughly $126,000 three years before. Median family income dropped nearly 8 percent during the same period. While this data is older, it illustrates issues that continue to weight on the economy.

Although net worth has fallen largely due to the housing crisis, total household debt has also dropped slightly as Americans, like banks, seek to de-leverage and shed liabilities.

Despite continuing their climb out of total household debt, Americans are digging deeper into their pockets to fund the next generation’s future. According to a new report from the Federal Reserve Bank of New York, outstanding education debt rose to $904 billion in March, up $293 billion in the last four years.

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Why Saving In Your 401(k) Might Be Horrible For You

By Frank Armstrong III, Forbes Magazine

A 401(k) may be the largest financial asset a family has. They can be great to build wealth, or so defective they may not be worth your participation. They range from excellent to awful. Unfortunately, it’s up to you to decide whether to maximize the opportunity or pass and find better ways to invest.

Above all, 401(k) plans are investment vehicles and they should be judged accordingly. While there are some tax advantages built in, those can be quickly destroyed by excessive costs, poor performing funds,  and insufficient diversification opportunities to allow you to manage risk.

It takes a lot of capital to replace you at work as your family’s income generator. A good 401(k) can be your best ally as you prepare. Or, a lousy plan could destroy your chance of a decent and secure retirement. Now would be a very good time to make sure your plan is up to the challenge.

But, where do you start?

Improved disclosure is on the way

The disclosure you are about to get under the new Department of Labor regulations is a good place to start to evaluate your pension. But, disclosure in a vacuum is worth zero. It’s what you do with the information that counts.

The disclosure from each pension service provider to the plan sponsor covers costs, methods of payment, services, fiduciary status, and potential conflicts of interest. For the first time, plan sponsors will have a complete picture of who is getting paid for each service and whether that payment is “reasonable” considering the service provided. Additionally, each service provider must state whether they are acting in a fiduciary capacity which requires them to make decisions solely in the best interests of the plan participants.

Make no mistake about it, this is critical information, and this disclosure requirement is long, long overdue. However, it’s only one piece of the pie. But, let’s start with that piece of the pie as a first screen to see what we should learn, and then work on other parts of the plan.

The easiest place to start is with costs. There are necessary services that must be paid for by a qualified plan that may make it more expensive to administer than a carefully managed personal account. Record keeping, plan administration, legal, tax preparation, fund expenses, trading costs, compliance testing, accounting, statement generation, web services, custody, and investment advice all cost something. Each cost on its own should be reasonable. But, from the perspective of the participant it’s important that the total expenses not be excessive.

As an example, a typical well run very small company plan with $1 million total balances and 50 participants might come in at 1.3% of assets per year total costs. Larger plans should be somewhat cheaper. So, if your plan has total costs that exceed 1.3%, and you pay them, you might want to know why.

It also helps a lot of your employer pays plan expenses directly rather than have them deducted from your account. That can have a dramatic positive impact on the costs you bear and your retirement benefits.

It’s not unusual to come across plans of that size with total cost exceeding 3.25% of plan assets per year which is a devastating tax on future accumulations. In that case, I wouldn’t invest one penny over what it takes to get the match (if any).

Next, you will want to insure that your plan’s investment advisor, administrator/record keeper acknowledge their fiduciary status which would hold them to the highest standards of prudence and the requirement to make decisions solely in your best interests. If they won’t make decisions in your interest, why would you need them?

Potential conflicts of interest are the next item of concern. As just one example, if an advisor is tied to a single fund family, or to fund families that pay them in revenue sharing arrangements, your universe of potential funds is vastly restricted and your costs may be higher than “reasonable”, and they may tolerate substantial underperformance for extended periods.

Beyond Disclosure

Beyond those disclosure requirements there are a number of qualitative considerations that make up a great 401(k) plan. Other plan features are important:

• Enough low cost index funds to effectively and economically diversify your portfolio around the world’s equity and bond markets.
• Predefined target risk and target date solutions to assist you to manage your portfolio to meet  your unique situation without requiring you to select individual funds or develop asset allocation models.
• On line tools, calculators and educational material to make number crunching and planning your retirement simple and effective.
• An easily navigated web site allowing 24/7 access to account information, values, performance, loan initiation, investment and contribution changes.
• Periodic automatic rebalancing
• Call centers staffed with helpful advisors.

Take the time to evaluate your plan. Remember, it’s your money going into it, and the investment results will determine whether or not you have a secure retirement. You simply can’t avoid responsibility for making informed decisions.

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What End of Bush Tax Cuts Would Mean for You

Unless Congress takes action, it's not just the "rich" who will see higher tax bills.

By Bill Bischoff

The so-called Bush tax cuts are scheduled to expire at the end of this year. While you may already know that, you may not fully understand what's in store for you and your family. Here's what to expect.

Higher Tax Rates for All

You may think only individuals in the top two brackets will face higher federal income taxes if the Bush cuts go bye-bye as scheduled on Jan. 1, 2013. Not true. Unless Congress takes action and the president goes along (whoever that is), rates will go up for everyone -- not just "the rich." Specifically, the existing 10% bracket will go away, and the lowest "new" bracket will be 15%. The existing 25% bracket will be replaced by the "new" 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.

Bottom line: We'll all see higher taxes.

Higher Capital Gains and Dividends Taxes for All

Right now, the maximum federal rate on long-term capital gains and dividends is only 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20% (or 18% on gains from assets acquired after Dec. 31, 2000, and held for over five years), and the maximum rate on dividends will skyrocket to a whopping 39.6%.

Right now, an unbeatable 0% rate applies to long-term gains and dividends collected by folks in lowest two rate brackets of 10% and 15%. Starting next year, folks in the lowest two brackets will pay 10% on long-term gains (or 8% on gains from assets acquired after Dec. 31, 2000, and held for over five years) and 15% and 28% on dividends (compared to 0% now).

Bottom line: taxes on long-term gains and dividends will go up for everyone.

Harsher Marriage Penalty

The Bush tax cuts included several provisions to ease the so-called marriage penalty. The penalty can cause a married couple to pay more in taxes than when they were single, which is nuts.

Right now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as for singles. This helps keep the marriage penalty from biting lower and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many folks.

Currently, the standard deduction for married joint-filing couples is double the amount for singles. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles.

Bottom line: lots of lower and middle-income income couples will face higher tax bills due to a harsher marriage penalty.

Return of Phase-Out Rule for Itemized Deductions

Before the Bush tax cuts, a nasty phase-out rule could eliminate up to 80% of a higher-income individual's itemized deductions for mortgage interest, state and local taxes, and charitable donations. The rule was gradually eased and finally eliminated in 2010. Next year, however, the phase-out will be back in full force unless Congress takes action and the president approves. So if you itemize and have 2013 adjusted gross income above about $175,000 (or about $87,500 if you use married filing separate status), get ready for this phase-out rule to take a bite out of your wallet.

Return of Phase-Out Rule for Personal Exemptions

Before the Bush tax cuts, another nasty phase-out rule could eliminate some or all of a higher-income individual's personal exemption deductions (for 2012, personal exemption deductions are $3,800 each). The rule was gradually cut back and finally eliminated in 2010. But it will be back with a vengeance next year unless Congress takes action and the president approves. So you need to be ready for yet another bite out of your wallet if you are a married joint-filer with 2013 adjusted gross income above about $265,000. If you're single, the magic number will be about $175,000. If you use head of household filing status, watch out if your 2013 adjusted gross income exceeds about $220,000.

Some Bush Tax Cuts Are Likely to Be Continued

Some elements of the Bush tax cuts have gained bipartisan support and will probably be continued beyond this year. Examples include inflation-indexed alternative minimum tax (AMT) exemption amounts, the ability to use nonrefundable personal tax credits to offset your AMT bill, and the deduction for qualified higher education tuition and fees. The current versions of the child tax credit, earned income credit, dependent care credit, and adoption credit are also more-likely-than-not to be continued. The Bush tax cut legislation liberalized these credits, and later legislation liberalized them even more.

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Personal Finance And The Election

With the Presidential elections scheduled for November, there is much debate in the U.S. concerning the most important campaign topics. In the June edition of Bankrate's Financial Security Index, a sample demographic of 1,000 adults were asked how much personal finance would influence their votes this fall. According to the results, an estimated six in 10 respondents suggested that personal finance will be incredibly important in their eventual decisions, and this revelation offered a fascinating insight into the current economy and how it is perceived within society.

Personal Finance in the U.S.

Despite the above statistics, 50% of respondents remain unsure as to which Presidential candidate would help them see an improvement in their own personal finances. Therefore, while citizens appear willing to cast their votes based at least partially on the present and future health of their finances, there is also a great deal of uncertainty as to who offers the greatest chance of long-term prosperity. More than revealing a certain level of indecisiveness in the voting demographic of the U.S., this also raises the important question of whether citizens are taking enough individual responsibility for their own financial futures.

Studies certainly suggest that the current generation of young adult voters struggle to manage personal wealth, thanks in part to a generally poor level of financial literacy. According to a PNC financial independence survey released in May, the average debt among adults aged between 18 and 29 in the U.S. is $45,000, while the unemployment rate for the same demographic stands at 12.4%. With the national rate of unemployment far lower at 8.2%, there is a tangible reason to believe that a significant portion of U.S. citizens are failing to take control of their careers and therefore unable to build genuine disposable wealth and financial savings.

An Age Old Issue

The issue of whether citizens take enough responsibility for their financial well-being is not exclusive to the U.S., and it is something that has been discussed in the U.K. for several decades. Under the famed rule of Margaret Thatcher in the 1980s, the concept of society was disregarded as something that bred dependency and inhibited wealth creation, and this philosophy led to the privatization of several industries and an increasing emphasis on empowering self-help and financial independence among citizens. Although these government policies drew criticism at the time, they were at least effective in encouraging individuals of all ages to take the initiative and strive to secure their own fiscal future.

While Thatcher's policies may have been extreme, they at least proved that individuals could develop a greater level of financial responsibility if the circumstances demanded it. The key is for citizens to develop this same level of independence in a more progressive political regime, where help and welfare is more readily available to those who genuinely require it. This process begins with a desire to change behavior and embrace willpower as a method of controlling your finances, as recent research suggests that this has genuine scientific merit as a self-improvement tool. According to the work of researcher Roy F. Baumeister and science writer John Tierney, willpower functions like a muscle in that it can be trained and strengthened.

How to Take Charge of Your Money

With this general attitude and drive in mind, all that is left is to put practical steps in place to manage your finances. A good place to start is by investing time into technology and online money management systems, which have continued to evolve in terms of their sophistication and the number of features available to users. Resources such as Mint.com and Doughhood are remotely accessible tools that can be used for budgeting, managing expenditure and creating savings and their ease of use empowers even less financially aware individuals to get to grips with them quickly.

In order to use this technology effectively, however, you also need to develop an acute awareness of your financial circumstances, and take tight control of both incoming and outgoing financial transactions. Budgeting is the most effective way to achieve this, as this is an involved process that requires you to appraise every aspect of your finances in determining disposable wealth and the potential for making savings. It is therefore an ideal first step towards financial independence, so long as you are accurate in your calculations and detail every sum of money that is spent or earned in exact dollars and cents.

The Bottom Line

From these simple steps, the citizens in the U.S. can strive to develop a far greater control of their personal finances, so that no future government change or action has the power to significantly hinder their long-term prosperity. This would also provide a foundation from which the current generation of adults can educate their children on wealth management, and equip them with pivotal skills and knowledge before they start working and develop an income source.

Read more: Investopedia Financial Edge

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