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Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts! INVESTMENTS AND WEALTH MANAGEMENT
Trends from Ink&Air, Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com , 508-479-1033
INVESTMENTS AND WEALTH MANAGEMENT Core and Satellite Using ETFs is Strategy for New Fund. The fund will fully invest its core 50% of assets in broad market indexes, including asset classes as needed, whether large cap, mid cap, small cap, or EAFE (international). "The core will be strategically managed with assets invested in typical style fashion, but will reserve the ability to take the investments to calmer waters in a storm but never go to cash. The other 50% of assets will be invested using an actively-managed market-sector rotation model, moving to the best performing sectors when appropriate, and with the ability to move a to 100% cash safe harbor, if indicated," says Greg Morris, a PMFM portfolio manager. "Diversification only lessens market risk. It has nothing to do with performance. Performance comes from market sector rotation. Currently there are 57 sector-related ETFs," says Morris, "that represent the ten market sectors. Every year for the last 15 years, some sectors outperform the S&P 500 Index. The evidence that certain market sectors outperform others at various times during a market cycle is irrefutable," says Morris. The fund attempts to take advantage of this sector rotation, using efficient and low cost ETFs. "The efficient market hypothesis believes that a stock price is based on all the knowledge and investor's attitudes which always move to correct the price. But in fact, stocks never get to an efficient pricing; the market is always striving to become efficient, but never does." says Morris. "Our job is to identify the best mix of broad market index ETFs for the core portfolio, which will change infrequently, and the actively-managed portion of the fund that can change sectors as needed and go to all cash as a defensive measure." he says. Greg Morris is one of the lead portfolio managers. He is the author of the best selling "Candlestick Charting Explained". His new book, due out in September 2005, "The Complete Guide to Market Breadth Indicators," will introduce market breadth concepts to investors. He was formerly trustee and advisor to the MurphyMorris ETF Fund, whose assets were merged into the new fund. Greg Morris, PMFM, Inc., can be reached at 706-579-1392. PMFM, Inc, Athens, Georgia has $711 million in assets under management. The firm provides tactical asset allocation money management services for its own clients, for assets held by 401(k) plan participants, and for other asset managers' clients. PMFM has a lengthy history of good risk-adjusted performance, preserving the value of client accounts in uncertain markets, posting positive returns in each of their investment strategy composites every calendar year since inception.
A Case Study for Paying Attention to Saving dollars on the cost of your investment management services can have a dramatic impact on your portfolio performance and bottom line results. Take Joe and Joan Cooper. They recently came to an independent financial advisor to discuss their stock and bond portfolio, currently managed by a private wealth division of a major bank. Their current fees are 1% on $4.5 million in assets and is equal to more than 40% of the current income generated by the portfolio. This does not even include the turnover expenses on the $1 million in mutual funds which are approximately $10,000 a year, or income tax on the portfolio of about $20,000 a year. A different, more honest and less expensive strategy will transition the stock portfolio into two in-kind The Coopers can expect a total savings of fees, expenses and taxes that will exceed $50,000 a year. Additionally, history and the fervently held opinion of John Bogle, Founder of Vanguard, is that an index portfolio is likely to outperform the Cooper's old portfolio by a significant margin every year because of the reduction in expenses and fees. Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, their families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP 800-385-7925
Strategic Asset Protection: If you can't move the asset to a safer place, then move the equity in the asset. Re-titling assets is a strategy commonly used by business owners and professionals (doctors and lawyers) to protect assets at high risk of litigation. This simply involves moving title to at-risk-assets into the name of the not-at-risk spouse. For instance, an attorney may have only the name of his or her at-home spouse on the deed to their primary residence instead of both of their names. If, however, the spouse is also in a high risk profession (i.e., a pediatrician), or it is not practical to re-title the property for other reasons, another strategy should be used. Homeowners often miss a strategy that involves using a primary home to protect a second home. Equity in primary residences can be protected from creditors and bankruptcy via a Homestead Declaration. In Massachusetts, for instance, up to $500,000 in the value of your home can be protected. In most states, a vacation or second home cannot be protected by a Homestead Declaration and could therefore be at risk to your creditors. Take out additional debt on your vacation home and pay down the debt on your primary residence. This will increase the equity on your primary residence while decreasing the equity on your vacation home. A good portion of your first home would be protected by the Homestead Declaration and your second home would be protected by the disinterest creditors would have to attach a second home heavily encumbered by debt. Business owners can employ the same technique to protect their accounts receivables. A business owner could factor his or her accounts receivables and use the proceeds to make maximum contributions to a retirement plan or purchase an insurance policy or annuity.. 401(k) plan assets are protected by ERISA and now IRA assets (up to certain limits) are protected under the new bankruptcy legislation. The cash values of insurance policies and annuities are also often protected by state laws. For professionals at risk for litigation, paying attention to your options to protect your assets can bring peace of mind and security for your family. Scott A. Farber, JD., CPA, CFP, specializes in providing asset protection
Traditional Estate Planning Techniques Fail Beneficiaries Too often the drafting of legal documents is confused with developing an estate plan. Sure, legal documents, such as a will, durable power of attorney, health care proxy and perhaps a trust are part of an estate plan, but they are not “the” estate plan. After you draft these documents, you meet with your attorney to sign them, put them somewhere “safe”, cut a check to the attorney and breath a sigh of relief. You finally have things covered. WRONG! Every effective estate plan, must answer four critical questions and few rarely do.– Don’t confuse proper estate planning with the drafting of needed documents, purchasing of insurance or a special investment product. An effective estate plan can only be accomplished with a well thought out approach that is designed to protect your most important information and guide your heirs. Mark Kaizerman, CPA, CFP, is the author of "Beneficiary Directory: Your Personal System to Organize Your Important Documents and Guide Your Beneficiaries, a step-by-step to putting the most significant documents in your life in order. www.beneficiarydirectory.com, Kaizerman can be reached at 508-647-0830 x 13, or for a copy of the book, contact the author at mark@beneficiarydirectory.com
Lock in Your Gains Now If You are Worried About To get beyond worry that a real estate bubble will burst and take away equity built up in homes, there are several non-traditional strategies that homeowners can take now to protect themselves from falling real estate values. One such strategy is to cash out some of your home equity utilizing an interest-only mortgage with a high balance (70% - 80% of the current home value). If you cash out your equity by taking on a larger mortgage, you will have no immediate need to sell the home if you need access to the funds after the property declines in value. On the other hand, if your property value declines while you hold a smaller mortgage on the home, your equity has essentially evaporated and you have no way to access the equity you once had available. Therefore, as a homeowner, you are actually protecting your equity by cashing it in now instead of waiting until the market declines and prevents you from tapping into that equity in the future. Interest-only mortgages allow homeowners to make this strategy work from a cash-flow perspective. Consider the following example with a homeowner who purchased a $500,000 home with a 20% down payment three years ago:
The homeowner in this example has cashed out $291,000 of equity by bumping up their mortgage from $400,000 to $691,000. Assume the homeowner parks the $291,000 in a short-term municipal bond paying 2.5% interest tax free (or a taxable money market account paying 3.5%). Also assume the market value of the property declines by 30% from $864,000 to $604,800. In this case, the homeowner would still owe $691,000 on the mortgage, which is $86,200 more than the home is worth. Although the homeowner would not be obligated to pay down the mortgage to be equal with the property value, they could do so if they desired. Therefore, after taking $86,200 of their $291,000 in cash to pay down the mortgage to be equal to the reduced property value of $604,800, the homeowner would still have $204,800 of cash left over. The homeowner maintains the same, if not better, monthly cash flow as before by switching from a 15-year mortgage to a 10-year interest only mortgage. If the homeowner leaves the mortgage balance at $691,000, the monthly payment would be $3,311. However, if the homeowner pays down the mortgage to $604,800 after the property value declines, the monthly payment on the 10 -year interest only mortgage would be reduced to $2,898. It is important to note that he homeowner has successfully locked in $204,800 of gain. By implementing this strategy now, the homeowner can sit tight for another 10 years until the property recovers its value while having full use of the $204,800 of cash. On the other hand, if the homeowner doesn’t utilize this strategy to cash out their equity now, they may be forced to sell the home or refinance at potentially higher interest rates if they want access to that $204,800 of home equity. After all, the local economy will likely be devastated if local property values do indeed decline by 30%. This strategy is especially helpful if you foresee a real estate bubble bursting, because mortgage lenders are reluctant to lend money in areas with declining property values. Therefore, if the homeowner wants access to their home equity at a later time, the interest rates will be higher and the qualification guidelines more stringent because of the higher loan-to-value ratios, declining property values and the borrower’s potential job and income situation due to a faltering economy. Check out the numbers of this non-traditional view of managing home equity. The numbers can make a lot of sense when given the proper evaluation. This strategy allows homeowners to manage home equity as they would manage any other investment – by diversifying and not leaving all their eggs in one basket. Gibran Nicholas is the CEO and founder of Nicholas & Co. Mortgage Planners, a private mortgage brokerage and mortgage planning firm based in Ann Arbor, MI. Gibran is also President and co-founder of the CMPS Institute, a nationwide training and certifying organization created to help mortgage professionals integrate financial planning concepts into the mortgage process. Gibran has created Wealth Equity, an educational DVD course to help home owners, home buyers and real estate investors transform real estate equity into wealth. Phone: 888.608.9800; Email: Gibran@WealthEquity.com; Web Site: WealthEquity.com
Unmarrieds Shown the Door After Death of a Partner It is a cruel fact, but not very unusual, that unmarried partners often do not take care of the details when it comes to housing owned by one of them. It is not at all unusual for relatives to boot the former partner out the door because the partner's name is not on the deed, and therefore, he or she has no legal rights to the home. There are risks and consequences to inaction, and the realities should serve as a catalyst for unmarrieds to build a financial plan. Take the situation of Arnold and Thelma who had been together for eight years. They moved into an upscale apartment, but Arnold told his family and friends that Thelma deserved it because she had spent the past three years caring for him through a very tough illness. A month after the move, Arnold died. The will was difficult to locate (in itself a serious problem that can be rectified by attention to details). It was 30-years old and although Arnold had been updating it, his attorney had been deployed to Iraq and it was never finished. The old, but legal, will gave the property to Arnold's three surviving siblings. The lease was in Arnold's name only. Thanks to sensitive brothers, Thelma was helped until she could get back on her feet financially, but not all partners' families are as caring and generous. In another example, Jordan and Betsy shared a home that Jordan initially owned individually. They split all expenses 50/50 and talked about “their” home and their future together. Jordan had even proposed, Betsy said yes, but no date was set for the wedding. Jordan died in an automobile accident. After the funeral, her friends took her out to dinner. When she returned to her home, Jordan's older brother and father were in the process of moving Betsy's belongings out of the house and into a rented trailer. A six-year earlier will, before Jordan had met Betsy, had left the house to his brother. Betsy buried her partner and lost her home in the same day, and she had no recourse. This tragedy could have been avoided if Jordan had simply changed his will or altered the title on the home to joint tenants with right of survivorship. The latter on the deed would have taken precedence over the will. .Debra Neiman, CFP®, Neiman & Associates Financial Services, LLC, Watertown, Mass., helps traditional and non-traditional couples and families make smarter financial decisions so that they can achieve peace of mind and pursue their life dreams. SHE IS THE CO-AUTHOR OF “MONEY WITHOUT MATRIMONY: THE UNMARRIED COUPLE'S GUIDE TO FINANCIAL SECURITY.” Neiman provides fee-only financial planning, tax preparation and investment advisory services. deb@neimanonline.com 617-744-1816. NEW BOOK "MONEY WITHOUT MATRIMONY: The
Support the Need for a In the lazy months of July and August, when the market typically goes on stand-by, I propose that those who report on the business of finance launch a grassroots campaign. The mission: To petition the President of these United States to charter a Council on Fiscal Fitness with a mission to educate, empower, and inspire all Americans to pursue a path of financial well-being. The President’s Council on Physical Fitness (PCPF), launched in 1956 with the declaration that “physical fitness is vital to a healthy lifestyle,” has served as a catalyst to promote, encourage and motivate Americans of all ages to become physically active. In 1983, Congress declared May National Physical Fitness and Sports Month. I would argue that the time has come to extend the definition of a healthy lifestyle to the financial arena and, indeed, to declare financial well-being as essential a component of overall health as physical well-being. No doubt, financial stress claims its victims as surely as a couch-potato lifestyle. Consider the facts:
The Council on Physical Fitness operates with a council of 20, a staff of 9, and an annual budget of roughly $650,000 a year or 0.002 cents per every American man, woman, and child. Surely, Congress could see its way to the enormous return to be gained by a similar investment in The Council on Fiscal Fitness. Rest assured, that return would eclipse any success that private savings accounts could ever hope to produce in the market. As Peter Drucker said, “the best way to predict the future is to create it.” Vote now for the President’s Council on Fiscal Fitness! Along with private savings accounts, delayed retirement dates, and other proposed solutions (many delivered dead-on-arrival to the halls of Congress) to the ill-preparedness of Americans, especially baby boomers, for retirement, I’d like to add yet another one — The President’s Council on Fiscal Fitness. Paula Chauncey, CFA, Managing Partner, être llc, 617-716-0257 works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com.
Financial Advisers – Who Are You Serving? Financial Advisers have to keep it clear in our mind that we serve our current clients first, above ourselves and above prospective clients. We are in a position of trust regarding our clients making the potential for conflicts very high. Each financial adviser needs to examine his or her own practice to determine potential problems. There will always be advisers who actively try to scam their clients. We are, by a vast majority, a profession doing honest work to further our clients' goals. Each of us, however, must be aware of the pitfalls of our profession. o Financial advisers must be active stewards of their clients' investments. It is not enough to implement a portfolio design and then move on to the new ground only to return to the first client a year or so down the road. Active means staying abreast of both the portfolio and the client. o Do not take undue risks on behalf of your client. The client may have told you their tolerance for risk. It is not always prudent to place the client right at the edge of their risk tolerance. A financial adviser should be striving for reasonable long-term returns in light of each client's risk level. o Strive to preserve what assets the client already owns then work towards increasing their portfolio. To keep pace with and exceed the destructive power of inflation, the client must accept risk, but the financial adviser has the responsibility of matching the acceptable risk with the client and the client's goals. o Strive to give high quality advice to existing clients. Too many advisers focus on obtaining new clients rather than servicing existing clients. They want to grow the number of clients instead of growing the accounts of the clients. o Complete disclosure is a key step in handling conflicts. But keep in mind that disclosure of a potential conflict may not be sufficient to protect the client from a real conflict of interest. If the client places complete trust in the financial adviser, any disclosure will not likely create concern. It is up to each advisor to actively police him or herself continually. For example, if a client has a desire to pay off a mortgage, and would use portfolio assets to pay it off, there is a conflict with the advisor who loses assets under management when the client takes that step. Service to our clients is paramount and self-policing and clear disclosure is key to the most honest client relationships. Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. pfshim@usinternet.com.
Email Marketing, the Best Tracking There Is. Most of you probably are familiar with website statistics – those reports that tell you how many people came to your site, where they came from, and what they did when they got there. Perhaps you are not using that data as effectively as you should be, but that's for another time. What you may not be aware of is that email marketing has all of those features as well as the most critical piece of information for “stats marketers” - who did the clicking. Since email marketing is sent to a specific individual, the statistics generated are about those individuals – powerful data when properly applied. There are several ways you can use this information. Generally, you are looking to segment your list into related chunks. Let's say you have a list of potential customers to whom you send email marketing pieces. For our purposes here, let's assume you have five distinct products or services, and you'd like to know who's interested in which one. You'd begin by sending one piece per week for a month. Each email needs to contain a link related to the 5 distinct products – typically this is done with a sentence or two on the product, with a 'read more' link leading to the rest of the info on what we call a “jump page” on your website. Once you've sent the weekly piece for a month, it's time to fire up that spreadsheet and process your data. You'd begin by copying the list of addresses you emailed to into the sheet. Then you'd make your columns across the top – issue 1 link 1, issue 1 link 2, and so on. In each cell you'd either put a “1” (yes they clicked) or a “0” (no they didn't click) – the actual data for this comes from your click-through reports. With the use of a few simple formulas you'll be able to generate a “Score” on each of your 5 products – it'll range from zero to five. Just add together the cells that are your first product, then the cells that are your second, and so on. (don't worry if this sounds hard - it isn't, and anyone who uses spreadsheets regularly would have no trouble giving you some help here). Once you've generated a “Score” for each of your 5 products, you can sort by that score – this will give you the segment of your list that always clicks on a particular type of product information. The uses for this information are not hard to envision – if you know a particular customer group is interested in a specific type of product, that's what you'd focus on in future marketing communications. You might even call some of these folks to pitch it directly – you already know they're very interested. A good service bureau for this is ConstantContact.com. They recently added a feature to make this even simpler. On the click-through report for every email sent, it will show you who clicked on which links – that list now has a new button entitled “Save as Interest Category”. The new feature, and the ability to merge different categories, makes this entire process much easier. As this channel becomes more and more effective, you should be using this type of tracking. It will improve your email marketing efforts and help you remain competitive. KISS Computing is full-service web strategy firm, providing design, implementation, long term evaluation, and action steps for change that keep web site profitability above $5000 a month for small and mid-size companies.Ross Lasley KISS Computing, Eastham, Mass., 508-255-9550 x401, ross@kisscomputing.com. Trends from Ink&Air, Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com , 508-479-1033
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