Financial Answers "IN SIMPLE LANGUAGE"

Happy New Year to Everyone!  As promised at the end of last year, In Simple Language is going to a new format.  In Simple Language will be giving you more useful financial information that affects you in your buying and selling of various financial products. 

 

In Simple Language is going to provide you with the most up-to-date financial information regarding mutual funds, exchange traded funds, stocks, bonds, annuities and anything else that you use to fund your 401k’s or regular investment accounts.

 

Information that you can use to take the pain and mystery out of investing.  It’s too near last year for anyone to forget about the “financial bloodbath” of 2008.  And there is no guarantee that you won’t see more of the same in 2009.  Let’s hope not. 

 

Do more than hope. Educate yourself through this blog, the many fine financial information sites on the Internet, quality financial magazines, financial newsletters, your trusted financial advisor and financial institution.  You will then have the ammunition you need to get you through this financial crisis and prepare you for the next one lurking around the corner.

 

It “is” all about the information and educating yourself.  As examples, read Smart Money Magazine, Kiplinger’s, and Money Magazine.  Ask your trusted financial advisor what s/he reads and see if you can get a free subscription and some previous copies.  Although technical in nature, there is still a lot of useful information to be gleaned from these professional’s magazines.  There are many fine publications out there.  Test drive a few and see which one’s fit your needs.

 

If your trusted financial advisor doesn’t offer a financial newsletter, ask them when they are going to offer a financial newsletter.  And tell them to make sure their financial newsletter is written In Simple Language.

 

Let’s Get Started

 

In Simple Language is going to start off 2009 with the most familiar type of investment. Most people that have a 401k plan at their corporate job or a 403b plan at their non-profit job or a 457 plan at their governmental job use, “ Mutual Funds”.

 

We’ll be talking about what’s called “open-end” mutual funds, the most common type.  Open end means that the mutual fund has an unlimited number of shares for sale. The open end mutual fund can therefore be as large or small in dollar size as it wants.  Some open end mutual funds are just a few million dollars in size while others such as the Growth Fund of America or Fidelity’s Magellan Fund are tens of billions of dollars in size.

 

There are estimates of somewhere between 8,000 and 10,000 mutual funds, this would include international funds, in the world so there is something for everyone.

 

So what are the reasons not to buy mutual funds?

 

• It’s the hottest mutual fund on the market today.  Usually when a mutual fund is being touted as the hottest or greatest fund going it is time to start looking somewhere else.  If everyone is buying the same thing then the chances of you making any real gains are minimized.  Usually the profits are already taken out of the fund and it is getting so big that the portfolio manager has a hard time buying and selling to maximize the returns on the fund.  There are some exceptions to this but not usually.

 

• Your friends are recommending a mutual fund.  Unless your friend is a financial professional or has some inside information (this is usually illegible) or has been incredibly successful investing in mutual funds thank them and forget what they told you. This fits in with the next reason not to buy a particular fund.  Your friends don’t really know your financial situation or your “investment temperament”.

 

• Doesn’t Fit Your Goals.  If a particular mutual fund is overly aggressive or too conservative for your needs than it should not be part of your investment portfolio.  If you can’t sleep at night with a particular mutual fund you put money into than don’t do it.

 

• Fund Manager Turnover.  The mutual fund has been around for a number of years yet the portfolio managers don’t stick around long enough to make the fund viable.  There must be a reason.  Find out before you buy.

 

• Fund Turnover Ratio.  This can be found in the mutual fund’s prospectus and tells you how often the fund sells and buys the investments in the fund.  If you are a conservative investor a high turnover ratio, buying and selling constantly, may not let you sleep well at night.  You may want to avoid funds like that.

 

• High Expenses.  The fund’s prospectus will tell you the costs of you owning the fund.  This is a very important consideration on your part because it directly impacts what you get to keep after the fund takes “all” of its expenses out of the fund’s performance profit before you get your share.

 

• Too Volatile.  If you are near or in retirement do you want to continue to have a large portion of your money in very aggressive emerging growth stock mutual funds from some third world country that changes governments every other day?  I don’t.

 

• Too New With No Track Record.  This may or may not be a good fund to look at because a fund has to start somewhere.  The question you have to ask yourself is “Do I want to be the initial guinea pig for this new mutual fund?”

 

 

This is not an all inclusive list but it will give you enough ammunition to more effectively choose your mutual funds.  It also gives you a solid starting point to question your trusted financial advisor when s/he suggests a mutual fund for your investment account or retirement account. 

 

Start reading the mutual fund’s prospectus.  I know it is difficult to understand because it is written with a lot of legal and accounting jargon but do the best you can.  When you don’t understand something in the prospectus ask In Simple Language or call your trusted financial advisor or call the fund company for an explanation.  Remember, it’s all about learning and educating you.

 

Recommended Reading

 

Here is a list of books on mutual funds that will give you more in depth information to help with your buying and selling of your mutual funds.   You can buy these books from Amazon.com through the links that In Simple Language has provided.  Thank You.

 

·         Mutual Funds for Dummies by Eric Tyson

·         Morningstar Guide to Mutual funds by Christine Benz

·         An Introduction to the Core Concepts by Mark Mobius

·         The Little Book of Common Sense Investing by John Bogle

·         The Rise of Mutual Funds by Matthew Fink

·         Morningstar Funds 500 by Russell Kinnel and Scott Berry

·         The Investor’s Dilemma by Louis Lowenstein and Neil Barsky

·         Index Funds by Mark T. Hebner

·         An Introduction to Mutual Funds Worldwide by Ray Russell

 

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2009

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

 

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This week has been devoted to two types of retirement plan programs….the 401k, used by employees of “for profit” organizations and the 403b, used by employees of “non-profit” organizations.  Both of these programs are critical to the retirement success of all employees.  I mean really, does anyone believe that they will be able to live on social security alone. Although, sadly enough, a lot of people do.

 

Lots of Other Retirement Programs

 

There are a lot of other retirement programs that are available that I have not touched on.  What about the people that are not employed by corporate America or the non-profit world?  What about those adventuresome entrepreneurs that report to the toughest bosses on the planet-themselves?  What do they have to ensure their retirement?

 

Entrepreneurs, the self-employed, have a variety of retirement programs to choose from.  First and foremost is the Keogh plan.  I’m not sure if that is the correct way to spell Keogh because I have seen it spelled at least three different ways so please bear with me.  The Keogh plan allows self-employed individuals to put money into this retirement program that is tax deferred and grows through compound interest-the ninth wonder of the world according to Albert Einstein.

 

There is also the Simple 401k plan for small businesses, the Simple IRA, the regular IRA, the Roth IRA, the Qualified Tax Deferred Annuity, the Non-Qualified Tax Deferred Annuity, and a host of others that have made retirement planning a specialty for many financial advisors because of all of the complexities of retiring.

 

As you can see, there are a lot of retirement programs to choose from whether you are an employee of a corporation or non-profit or self employed.  What you may not know is you are eligible for many of these retirement programs in addition to your current retirement program regardless of what that may be.  Check with your trusted financial advisor or accountant.

 

Tough Love Retirement Strategies

 

The real reason I am bringing all this up about all these various retirement programs is what is happening to all of the participants in these programs.  If you aren’t aware of it-where have you been?-we are officially in a full blown, knockdown, drag out recession, the likes of which we have not seen in many years.

 

I am reading article after article about how everyone is having a difficult time making ends meet and many people are relying on withdrawing money from their retirement programs just to survive.  I am seeing investment advisors having a difficult time telling their clients that they need to stop funding their retirement programs and divert money to an emergency fund because of all of the job losses and layoffs.

 

The pain is everywhere and advisors that I know-I was one once upon a time-are having many sleepless nights trying to do what is in the best interests of their clients.  I remember 1987’s stock market crash and how difficult it was.  This is worse.  However it is not something we can’t overcome.  It will pass.  I just don’t know when.

 

The point to all of this is that you have to put your priorities in order now.  Do I stop funding my retirement account or is there something else I can do to offset the loss of any income?  Should I be looking for a second job?  Should I be starting a business on the side?  You know where I am going with this.

 

If you stop funding and start withdrawing money from your retirement programs there will be hell to pay to try and catch up if that’s even possible.  That’s means working longer and/or reducing your life style in retirement.  Think about this long and hard and then make a decision.  It’s your retirement life.  What you do today will directly impact tomorrow.

 

Here’s a list of retirement planning books that you may want to check out.  They are:

 

• The Everything Retirement Planning Book
• If You Can’t Beat’Em, Join’Em
• Live Long Live Rich
• The Complete Idiots Guide to Retirement
• Planning Retirement Rx

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

·         Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.

·         Like what you read?  Send it to a friend.  Click on “share this post” right above leave a comment below.

·         Did you remember to bookmark this blog?

 

Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

 

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In my last blog post I talked about the 401k plan and automatic enrollment.  Today I want to touch on another plan.  The 403b defined contribution plan available to employees of non-profit organizations.

 

The 403b

 

The 403b, so named for the section of the Internal Revenue Code it is part of, is the counterpart of the 401k plan used by “for profit” organizations.  Not much is said about the 403b plan yet it represents the retirement plan program used by millions of public school teachers, school administrators, school service people, nurses, doctors, religious institutions, universities, colleges and many other people working in the non-profit area.

 

It is estimated that the 403b marketplace will increase to about $1 trillion in assets in the next two years.  That is a significant marketplace yet many people in the non-profit area are not familiar with the 403b retirement plan. 

 

The 403b and 401k Are Now Like Two Peas in the Pod

 

Similar in structure to the 401k, the 403b plan allows non-profit employees to directly contribute to a retirement plan through your payroll department.  You direct the payroll department to deduct X number of dollars from your pay each pay period based on a formula that gives you the maximum deductible amount you are eligible for.  Usually the pension company representative for the school district or non-profit will calculate this amount and submit the paperwork directly to the non-profit’s payroll department.

 

In most public school districts this department is the school district treasurer’s office.  Some non-profits have only specific times when you can enter the program or make changes to your current contribution amount.  Others allow you to join or make changes at any time.  Your 403b pension company representative should be able to provide you with that information.

 

This Gets Confusing

 

Unlike working for a “for profit” organization in which they have one plan provider for the company’s 401k program, non-profit organizations have many 403b providers calling on their organization.  Some of these providers usually called “vendors”, have their own sales force of advisors that would meet one on one with employees of the non-profit.  These people usually only represent that one “vendor”.

 

In other instances, you have an “outside” financial advisor who offers a variety of “vendors” to the employees of the non-profit.  These outside financial advisors are usually independent of all of the vendor companies and are self-employed owning their own financial businesses or working for an independent financial business.

 

January 1, 2009 Changes Everything

 

On this date, new federal regulations issued by both the Department of the Treasury and the Internal Revenue Service will start to consolidate many record keepers to attempt to reduce the disclosure burden they currently have. 

 

This means many non-profits will be getting rid of or canceling their contracts with many vendors.  This will effectively reduce the 30, 40, or 50 vendors  currently allowed to provide the 403b programs to the non-profit to just a handful.  Most of the major vendors in the 403b market are trying to establish and work with independent financial advisors.  This will allow these vendors to keep the portion of the business that they already have with the non-profit organization.  Otherwise, they may not be able to offer their 403b program at that non-profit institution.  This is both good and bad.

 

You need to find out which 403b plans your current organization is going to keep.  There will be a lot of people being directly affected by the new changes.  If your current vendor is not going to be contracted with your vendor any longer then you will have to make some choices as to who your new 403b vendor will be and what to do about your current 403b plan.

 

This is a very complex area and most non-profits, based on my experience, don’t truly understand the investment options and distribution options of the 403b programs being offered.  They are relying on the vendor’s financial advisors to do that with their employees.

 

Although offering less vendors does make the paperwork and confusion of the various 403b plans more manageable, eliminating competition is not always the best course of action.  Time will tell in your particular situation. 

 

There are a lot of very good companies and 403b plans out there.  There are also many not so good plans.  If you have a trusted financial advisor listen carefully to what they have to say.  If you don’t have a trusted financial advisor, find one.  This is your retirement future.  Protect it.

 

There are not a lot of books out there that talk about the 403b in an understandable manner.  One book , written in 2006, you may want to take a look at is A Lesson Plan in Retirement:The Complete Guide to Retirement for Teachers, Professors, and State Retirement Participants by James H. Bishopp which is a good basic book.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

·         Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.

·         Like what you read?  Send it to a friend.  Click on “share this post” right above leave a comment below.

·         Did you remember to bookmark this blog?

 

Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

 

 

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Welcome to another new month.  December, because of all the holidays, is usually a month of parties, good cheer, and happiness for many people.  So I wish all of you the very best for this month and the coming New Year.

 

I’ve been talking a lot lately about 401k plans and what has happened to their values due to the economic mess we are in.  I have also talked about some of our politicians talking about doing away with the 401k plan.  In those posts I said then as I am saying now until you show us a better retirement program leave the 401k alone.

 

Corporate America Agrees

 

It seems in a recent study done by Mercer LLC of New York 51% of the employers they surveyed have set up automatic enrollment of their employees into their 401k plan.  This says volumes about how corporate America sees the value of the 401k plan.  The automatic enrollment plan takes away a lot of the paperwork confusion for new employees.  This paperwork confusion is one of the main reasons many new employees don’t sign up for the company’s 401k plan.

 

The survey also showed that almost 6% of the companies surveyed where going to add the automatic enrollment feature to their 401k plan and another 18% were still evaluating and considering the automatic enrollment feature of their current 401k plan.

 

Now I don’t know about you but I don’t need a truck to fall on my head to tell me that corporate America is in favor of the current setup of the 401k plan program and wants to support it as is.  Again I am open to improvements in the current 401k plan setup but I am against getting rid of 401k’s and having your retirement placed in the hands of the Social Security Administration.  See my blog post of October 24, 2008 titled “Sticking It to Us Again!”

 

More Statistics

 

This survey was comprised of 173 defined contribution plan sponsors in whom almost 50% had more than 5,000 participants.  Also 44% of the plans had more than $500 million in assets.  These are large plans giving us a fairly representative idea of what corporate America is doing in the 401k plan marketplace.

 

For those of you new to In Simple Language, a defined contribution plan, your 401k plan, is a retirement plan that lets you define the amount you are going to have deducted from your paycheck each pay period and lets you decide how and where you are going to invest that money within the plan.

 

What this survey also tells me about corporate America favoring 401k plans is the fact with automatic enrollment or regular enrollment the more people in the plan the higher the cost to the company.  So this tells me that if the companies are willing to spend more money on more enrollments than they are serious about helping their employees provide for their future retirement.  The companies have validated the 401k plan programs.

 

Good News

 

More good news for all 401k plan participants.  The contribution limits for 2009 are going to be raised.  Effective for 2009, you will now be able to contribute up to $16,500-raised from $15,500 in 2008-based on your total gross income.  Talk to your payroll department to make sure you qualify for the maximum.

 

And still more good news.  If you are age 50 and over you are eligible for the catch up provision in your 401k plan which allows you to not only put in $16,500 in your plan but also an additional $5,500-raised from $5,000 in 2008-for a total of $22,000 in tax deferred income for 2009.  That’s $22,000 of income that you don’t have to pay federal income taxes on right now. This can mean significant retirement income for you down the road.

 

And even more good news.  These increases and dollar amounts also apply to 403b plans for people who work for non-profit organizations and also to 457 plans which are for governmental employees.  If there is any way possible for you to max out your contribution amount into any one of these defined contribution programs do it.  You will thank yourself down the road at retirement time especially if you are twenty or more years away from retirement.

 

Check with your payroll department as soon as possible and make the necessary adjustments to your 401k, 403b, or 457 plans now!

 

If you would like to read a new book on retirement you may want to take a look at Retirement Vault: A Guide to Protecting Your Assets in an Age of Uncertainty by Joseph A. Leonard 2008 today.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

·         Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.

·         Like what you read?  Send it to a friend.  Click on “share this post” right about leave a comment below.

·         Did you remember to bookmark this blog?

 

Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

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In the two previous posts on financial literacy, I had talked about how I felt about financial literacy and what was being done about it, at least by one organization.  Now I want to talk about the cold hard facts.  About the statistics. The numbers.

 

Statistics &Numbers

 

So in the previous post I stated that this is not a federal problem as much as it is a state problem.  The states actually mandate the curriculum used in the public schools.  All of the stats and numbers used here are from the 2007 survey from the NCEE (National Council on Economic Education). 

 

This 2007 survey does a comparison of 1998 -2007 on economics and personal finance for all 50 states of the United States.  So let’s get to it and look at the numbers.  I am only going to quote the numbers regarding personal finance because I feel that is the area that most students are really lacking. 

 

Economics is important but I am not sure that that is as strong an issue with  how it affects each individual personally when it comes down to how to run a checking account and what a saving  account is.

 

I remember having economics in high school but it was limited to types of economics and policy rather than how does this affect me personally.  I really want to drill down to the basics of personal finance where so many young people are lacking knowledge.

 

Here They Are

 

• Number of states with content standards increased from 21 in 1998 to 40 in 2007. 
• Number of states requiring implementation of content standards increased from 14 in 1998 to 28 in 2007.
• Number of states requiring a course to be offered went from 0 in 1998 to 9 in 2007.
• Number of states requiring a course to be taken for graduation was 1 in 1998 increasing to 7 in 2007.
• Number of states requiring testing was 1 in 1998 increasing to 9 in 2007.

 

Note: These numbers are taken directly from the personal finance column of the NCEE’s Survey of the States.  You can read the entire survey at www.ncee.net .

 

More Numbers

 

Personal finance, a newer topic in the survey, showed an increase of 40 states now including personal finance in their educational standards, up from 21 states in 1998.  Also 28 states now require the standards to be implemented.  This is up from 14 in 1998.

 

What I find disturbing, especially because of what has been happening lately with our financial landscape, only 7 states require students to take a personal finance course as part of their high school graduation requirement.  And sadly only 9 states require the testing of student knowledge in personal finance.  This is nuts. We need to do more.  Much more.  We need to get on the states to make this a priority. 

 

Rattle Some Cages

 

I don’t want to get political here but I will.  Call your state representatives and let them know your thoughts.  If this gets fixed it is going to happen because of your efforts and only your efforts.  What’s your children’s financial future worth?  Call today and see what your state is doing about fixing this important issue.

 

I came across this book which I think you should check out.  It is called The Secrets of Money: A Guide for Everyone on Practical Financial Literacy by Braun Mincher which is a good starting point to getting you moving in the right direction with your financial literacy.  Check it out today.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about .  Tell us your story.  We really do want to know.

 

• Please ask your questions of In Simple Language.
• Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.
• Like what you read?  Send it to a friend.  Click on “share this post” right above leave a comment below.
• Did you remember to bookmark this blog?

 

Thank you for taking the time to visit In Simple Language.  J  Copyright 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above for all available services.

 

 

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