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A Monthly Newsletter Source of Financial Sources • When Emerging Endowments Need More Help With Investing. An endowment at or over $2 million will benefit from professional money management. ESTATE PLANNING AND RETIREMENT • Understand the Basics of Your Dynasty Trust • Estate Planning Can Customize a Structure for Inheritances That Match the Complexities of Your Family’s History. • Be Wary of Common Flaws in Fundamental Analysis • Looking Long-Term: The Winslow Green Index,
A Green-Screened, Equal-Weighted Index of 100 Stocks, • First Checking Account Can Teach Teens Valuable Lessons About Money, Debt, and Credit Ratings. • Financial Advisors Want to Partner With Mortgage Professionals. CMPS Institute Helps That Happen. When Emerging Endowments Need More Help With Investing Think about a successful non-profit organization with an endowment the board is comfortable managing, probably in a diversified portfolio of mutual funds, of about $500,000. Then think what will happen when a generous bequest of $5 million lands on the doorstep, and managing the endowment is of far greater consequence than previously. More endowment funds means more choices and opportunities for investment. Recently, an railroad museum East of San Francisco Bay area had this happen to them. The Board of Directors had no idea the $5 million bequest was on the horizon -- it just appeared. Yes, it is a nice problem to have, but a serious one for the board of directors who knew they were over their heads. Their opportunities as an organization and their responsibilities were suddenly greatly magnified. Funding and staffing programs now possible with the bequest means the board must create an income stream from the bequest to pay for the organization’s current and possible future growth. The inflection point for non-profit endowments is at or about the $2 million mark. Under $2 million, the board can probably manage on their own. Over $2 million they will benefit greatly from a professional money manager. Finding an investment advisor with experience working with emerging endowments requires attention to several issues: • Previous Experience • Ability to Educate Board Members • Track Record in Generating Income Stream to Meet Budget Requirements • Support for Additional Fund Raising • Serving as Institutional Memory William Urban, CFA, CFP® is a principal of Bingham, Osborn & Scarborough LLC (BOS), a San Francisco and Menlo Park, California-based registered investment advisor with approximately $1.5 billion in assets under management. BOS has provided investment management and comprehensive financial planning for individuals and endowments since 1985. All revenues are fee only. BOS has eight principals plus eighteen team members working on behalf of their clients, including seven credentialed portfolio managers with direct client contact and eleven operations, administration, finance, compliance, and systems staff with responsibilities related to client accounts. Bill.Urban @bosinvest.com. 650-462-8666. Understand the Basics of Your Dynasty Trust Setting up a dynasty, or generation-skipping, trust need not be an overwhelming endeavor, but there is a specific check list for you to work against when you are in the planning stages. It is important that you become acquainted with the salient points of your trust, including the following: • A Delaware trust should be used, when needed, to minimize state taxes, maximize privacy, and protect the assets from creditors for future generations without transfer (estate/death) taxes – forever. • Keep control in the hands of the inheritors and provide for two exit strategies whereby the heirs can draw down the entire trust principal if they feel it is to their benefit. • Remove conflicts of interest and hidden agendas from service providers. Research cost structures of your advisors and any recommended investment products and find out what you get for that money. • Arrange for the trust to hold investments in bonds, stocks, mutual funds, treasuries, and real estate. It should be the beneficiary of any life insurance held at the time of death. • Arrange that the trust may be funded at any time to leverage the tax savings. A family limited partnership may be added to the trust to increase the amount of family assets protected in the trust. • The trust becomes a family bank when used correctly and the trust is the source of comprehensive financial services; however, beneficiaries must never delegate away control. They must become and remain involved and informed. • Delegate to a team of tested, trusted advisors working in conjunction with an independent corporate trustee to administer the trust. Beneficiaries must maintain the ability to hire and fire the advisors as needed in the future. • Make certain your total costs do not exceed those of a typical mutual fund. The trust is designed to be a profit center, customized for flexibility and personal attention. 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, his clients’ 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 seth.pearson@verizon.net Estate Planning Can Customize a Structure for Inheritances That Match the Complexities of Your Family’s History. The goal of estate planning is to provide for the smooth transfer of assets following the death of the owner of the assets. In a simple world, the owner states that, "I want my spouse to get so much of my stuff, I want to leave so much to my favorite charities and I want each of my children to share equally in the rest.” We do not live in a simple world. Divorce, stepchildren, adult children with special needs and adult children with business difficulties, emotional, addictive or marriage issues are all fairly common occurrences. When planning, a person must identify and clearly state their goals. This may mean confronting some difficult family issues. However, failing to plan for those issues can lead to the failure of part or all of an estate plan. It is not necessary to treat your children equally. You probably never have before so why start after you're dead? If a child suffers from chemical dependency, you certainly don't want that child having unfettered access to his or her inheritance. The same may be true for a child in a troubled marriage, a child with a large amount of personal debt, a child who owns a business in financial difficulty, or a child who simply shows no ability to handle money. Creating a trust for one child but not the others may seem unfair, but until you pass on, the assets are still yours to do with as you see fit. Some children can be given their inheritance outright while others may need to wait a while before receiving it outright. Trusts can protect a child's inheritance from being taken by creditors, soon to be former spouses or squandered by a spendthrift child. The key in proper estate planning is to carefully plot out your estate planning goals, honestly reviewing the strengths and weaknesses of your children to determine what risks they would face if they suddenly received a sizable inheritance and involving professionals to help you achieve these goals. 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. pfs@usinternet.com. Be Wary of Common Flaws in Fundamental Analysis Literally hundreds of millions of dollars are spent each year on the analysis of individual securities by Wall Street brokerage firms and independent firms (Zacks, Hoovers, Value Line, etc). Most brokerage firms have a large staff of analysts, which make huge salaries, and are widely summoned to television shows each day for their opinions based upon their research. Most will focus on a single industry so that their expertise will not be diluted; they are specialized, they are considered experts. In fact, most of what makes up daytime financial television are the interviews of these analysts, and of course, the never-biased (TIC) CEOs of the companies. One of the major components of their analysis resides with what we know as “multiples.” “Multiples” refers to the fundamental ratios that govern how a company is doing financially. There are many of these ratios, such as: Price to Earnings, Price to Book, Price to Dividend, Cash to Price Percentage, Working Capital to Price, Earnings to Book, Net Assets to Price, Price to Sales, on and on. The purpose of using multiples is so one can compare one company against others using a common measuring stick. This is the heart and soul of what is known as fundamental analysis. Fundamental analysis is big stuff; go to any brokerage website, type in a stock symbol, and you will be inundated with beautiful color multi-page reports discussing the potential of the stock and the analysts’ current rating. The first hint of a real problem is that they all use different terminology to describe their ratings, such as: overweight, equal weight, neutral, underweight, etc. They don’t give you the more desirable buy, sell, or hold anymore. This new terminology gives them the ability to mask what they mean behind various types of valuation methods. So what’s the problem? Most fundamental ratios (multiples) use price or a derivative of price in their calculation. Because of this, as the price of a stock changes constantly, and the financial reporting is usually only quarterly, these ratios can be better or worse just based upon the movement of the stock’s price. So why not just analyze price? Bingo! And that is what technical analysis is primarily all about. Do you remember Enron and its downfall in 2001? If you followed the wall street analysts you would have never realized there was a problem – all the way down until the stock became worthless, the majority of the analysts described what a great opportunity it was to buy the stock. The following chart shows the price of Amazon’s stock and the analysts’ calls. Not overly impressive is it? Notice how the fundamentally impaired continually recommended it – all the way down?
The last few years have seen the price of Delta stock (DAL) decline from $71 in 1999 to less than a dollar recently. Prior to them declaring bankruptcy, you could easily go to a brokerage website and pull analysts reports and create a chart of Delta similar to the one shown of Amazon. In fact, I just went to a major brokerage site and pulled the analysts reports since July, 2004, and there were 223 beautiful color multi-page reports – all suitable for framing. Someone was “selling” you that stock - all the way down. Sad isn’t it? However, don’t take my word for it; you need to set aside an hour or so and try this very exercise – you will convince yourself of the folly of fundamental analysis. Finally, is there anything good about fundamental analysis? Sure, if it makes you feel better to buy stocks that have good multiples, do so, but use technical analysis to determine when to buy and sell them based upon risk and reward. Another way is to use fundamentals to narrow the field of issues you wish to analyze technically. Let the market tell you what is going on and act accordingly, or find an investment manager who can remove all of the bias and emotions from market analysis. Gregory L. Morris is a portfolio manager for PMFM, Inc., managing their PMFM Core Advantage Portfolio Trust mutual fund. Prior to this role, Greg served as a Trustee and Advisor to the MurphyMorris ETF Fund and as Treasurer and Chief Executive Officer of MurphyMorris Money Management Co. Greg has been a technical market analyst for almost 30 years. Greg is also an accomplished author and has written two books on technical market analysis with McGraw-Hill. A third edition to his best-selling (16th printing) “Candlestick Charting Explained” will be released in March, 2006, and his second book, “The Complete Guide to Market Breadth Indicators,” was published in September, 2005. gregm@stockcharts.com, 706-579-1392 Looking Long-Term: The Winslow Green Index, The Winslow Green Index (WGI) is a "green-screened" equal-weighted index of 100 stocks of U.S.-based corporations. In January 2006, the index was up 9.59% compared to 8.91% for the Russell 2000, 9.62% for the Russell 2000 Growth, 2.55% for the S&P 500 and 4.56% for the NASDAQ. From its inception in August 1999 through January 2006, the WGI has risen 156.5% compared to a .1% rise for the Russell 2000 Growth, 64.8% rise for the Russell 2000, 3.7% drop for the S&P 500 and 12.6% drop for the NASDAQ. Constituents of Winslow Green Index were selected by Winslow Management Company, portfolio managers for the Boston-based Winslow Green Growth Fund (WGGFX). Winslow believes that the index's history indicates that investors can benefit from better performance when a green standard is applied to their stock picks. The average market capitalization of companies in the index is $10.45 billion. They were originally selected in July of 1999 on the basis of environmental factors, including, but not limited to, minimal environmental footprint, compliance with environmental regulations, presence of a proactive environmental policy, and products that benefit or minimize harm to the environment. The performance of the index is calculated every month, and index members are updated quarterly. Companies are removed if they are no longer publicly traded or have a market capitalization below $50 million. In addition, companies are removed if their green performance becomes unacceptable. Such companies are replaced with companies that meet both Winslow's "green" and market capitalization criteria. Jackson W. Robinson is founder and portfolio manager for the Winslow Green Growth Fund (WGGFX), Winslow Management Company LLC, Boston, MA. Winslow focuses on small growth companies with big, new ideas. The media can reach Jack Robinson by calling Nicolé Keane, director of marketing, at 617-788-1608 or nkeane@winslowgreen.com. First Checking Account Can Teach Teens Valuable Lessons When young kids get a feel for what it is to make small decision with money, they are better able to make good financial decisions when the stakes are higher. The stakes increase when teenagers want a checking account about the time they start a job. They can use a checking account, or debit card, to pay for regular purchases. But they need an introduction before you allow your child to open such an account. Require your child to do some research into the various offerings and costs at different banks. There are neighborhood banks, online banks and credit unions to investigate. A basic list of questions to research includes: • Is there a monthly service charge? If so, how much? Discuss with your child the consequences of having a bank account. If she experiences an overdraft, even from an innocent mathematical error, it might end up on a credit report for her, generating a negative credit report very early in her life. As the parent, you can put a small cushion of money that is your money into the account. Each month you can review the bank statement with your child and if the balance has dipped into your cushion, she owes you the overdraft fee the bank would have charged. You could do the same thing with the overdraft protection line that’s provided by the bank. If she goes into it, she pays you the overdraft fee. Successfully managing a checking account at a young age helps a good credit rating and practice at keeping bills up-to-date. Linda Leitz, CFP, Pinnacle Financial Concepts, Inc., Colorado Springs, Colorado, is author of “The Ultimate Parenting Map to Money Smart Kids,” as a book or as a CD. She specializes in helping families and individuals meet their long- term financial goals. She also helps those in the midst of divorce resolve financial issues through her company Divorce Solutions, Inc. She can be reached at 719-260-9800 or Linda@brightleitz.com. Financial Advisors Want to Partner With Mortgage Professionals. Sixty-one percent of financial advisors queried say they want better relationships with mortgage professionals.• The CMPS Institute, the granting body for the Certified Mortgage Planning Specialists (CMPS) designation, advocates for highly educated and skilled mortgage originators who share an intense interest in partnering with financial advisors as strategic referral partners. These mortgage professionals have a different take on their profession than traditional mortgage sales people – they are choosing long-term relationships with their clients and other financial professionals. The CMPS Institute has developed three, two-hour lecture templates already approved by the national CFP Board of Standards as continuing education credits for the CFP® designation. Mortgage originators who earn the CMPS designation possess the knowledge, skills and have access to the presentation tools to present this program to their local financial advisors. The educational programs provide a needed service to financial advisors. In addition, as a special bonus, the CMPS Institute is offering a special price for CFP® partners registering with a mortgage originator for its upcoming two-day live educational course to be held in Marina Del Rey, California, March 30 and 31 and in Washington D.C. on May 22 and 23. The course has been accepted by the CFP Board for 13 hours of continuing education credit for CFP® practitioners, representing almost half of their required bi-annual 30 hours of continuing education. Go to http://www.cmpsinstitute.org/LiveEvent for more information. Gibran Nicholas is Chairman and founder of the CMPS Institute, located in Ann Arbor, MI, a national training and certifying organization to help mortgage professionals bring a financial planning approach to the mortgage process. Since the launch in August of 2005, the Institute has grown to nearly 1,000 members nationwide. Nicholas is also CEO and founder of Nicholas & Co. Mortgage Planners, also based in Ann Arbor, MI. He is the author of Wealth Equity, a 5 1/2 hour DVD educational course to help homeowners, buyers and investors understand the mortgage, home buying and real estate investment process. He can be reached at 734-531-0180 or gibran@cmpsinstitute.com |
