Financial Answers "IN SIMPLE LANGUAGE"

Both defined contribution plans, the 401(k) and the 403b retirement plans, are the mainstays of the American workers future retirement needs.  A well funded retirement plan along with social security, personal assets, and personal savings will ensure a comfortable retirement for the American worker.

Let me define what a defined contribution plan is.  A defined contribution plan lets the employee define the amount of money you want to take out of your paycheck each week or every two weeks or once a month or however you are paid before taxes are calculated.  This immediately lowers your taxable income and potentially your tax bracket.

The amount taken out of your paycheck, determined by you, is usually based on your total income for the year and can vary based on your age.  If you are fifty-five and older you can contribute more into your plan.  You also have the ability to say how your money is going to be invested and where and how much of the total.  This is, of course, based on what investment options are offered within the defined contribution plan.  And there are other things offered, not always, but usually a loan provision. If offered, you can “borrow” money from your defined contribution plan.

Also most defined contribution plans offer a wide variety of investment choices such as a savings feature which pays a fixed rate of interest and a variety of mutual funds to choose from.  You can even change the mutual funds and the amount of your contribution going into those mutual funds as your circumstances change.

The best thing about defined contribution plans is the fact that your employer might match a portion of what you are putting into your plan.  As an example, your employer would match the first 3% of your money up to a certain dollar amount each and every pay or whatever the employer is offering.  This is free money and an instant return of 100% on your money.  That is as good as it gets.  If your employer offers this and you are not taking advantage of this offer you are losing money.

So what’s happening with defined contribution plans?

Because of the way most investments were devastated in 2008-09, the government and many public officials have been looking at ways to prevent you from again losing large amounts of your money in your 401(k) or 403b plans.  Note:  The 401(k) is for “for profit” companies like GM, GE, Microsoft whereas the 403b is for “non-profit” companies like hospitals, public schools, colleges, and universities.

What the concerned public officials are talking about is having an annuity feature-a monthly income for life-in all defined contribution plans.  What this would do is “guarantee” a monthly income for life for anyone with a defined contribution plan.  As it now stands if you have all of your money invested in, let’s say, mutual funds there are no guarantees that your defined contribution plan will have any money in it when you need it in later years.

An annuity feature would allow you to take a portion of your money and set it aside so that that part of your plan would “guarantee” you some sort of monthly income payment for life regardless of what would happen to the investment part of your 401(k) or 403b. 

Amazingly enough of 1,500 employees polled recently, only 44% thought the annuity feature was a good idea.  I believe that number is less than half because of the confusion, misinformation, and lack of knowledge about financial topics that permeates our educational system.  That is another topic for a further post.

What do you think about having a guarantee of a lifetime monthly income as part of your 401(k) or 403b plan?

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

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Here we go again.  Another financial advisor caught with “her” hand in the cookie jar.  Notice I said “her”.  My previous posts have been about “him” but it looks like one of the ladies has decided to join the ranks of the “financial dirtbags” group of greedy financial advisors.

 A Star is Born

It seems that a very well known financial advisor in the great State of Washington has decided to plead guilty to a federal mail fraud charge.  This advisor, Rhonda Breard of Breard & Associates Wealth Management, has been accused of stealing over $9 million from her clients.

Something of a star financial advisor in the Seattle, Washington area, Ms. Breard has a financial habit that she needs to support so she can maintain her three homes and dozens of cars and boats. It seems she doesn’t make enough money from her practice so she has taken the necessary funds from her clients to support her life style.

Ms. Breard’s scheme is supposed to have begun around 2004.  It seems she began recommending to her clients that they liquidate some of their investments and purchase the investments that she was recommending.  This is a common ploy of “financial dirtbags”.

Another scheme she used was to have clients make out their investment checks to her firm and she would in turn use the funds for herself rather than invest the money in the proper manner.  There is a certain element of trust here that has to be developed between the client and the financial advisor. 

Unfortunately there is no fool proof way of knowing whether the financial advisor is honest or not.  Remember Bernie Madoff had a lot of people fooled for a long time.  I wish I could give you the magic formula for knowing if your financial advisor was honest or not.  But as I have stated before, most of the financial advisors out there are honest, hardworking individuals who really do have your best interests at heart.  You, as the investor, just have to find the right one.

Check your investment statements regularly

One of the ways the “financial dirtbags” have been able to steal from you is by providing you with false investment statements.  This one thing seems to be part of all of the financial schemes that I have read about over the years.  So what is a person to do?

If you are like most people, you have a tendency to gloss over the investment account statements, mainly because you don’t always understand what they are trying to tell you.  This is unfortunate but it leaves you wide open to be taken advantage of. 

The purpose of In Simple Language is to educate and inform you on relevant financial topics so you can be better prepared to handle your financial information.  I suggest taking a basic financial course at a local college or university to better understand financial terminology.  Take a financial course with an instructor that does not sell investment products or is only looking to pick up new clients.  Expanding their financial practice through teaching is certainly okay but that should not be the only reason that they are teaching a class.

Second, I strongly urge you to check your investment statement especially if you don’t understand it.  I recommend you call the brokerage company or mutual fund company or bank or whoever it is that you deal with and ask them to explain your statement.  This will not only help to clarify what your investments are but will also verify that the information on the statement is legitimate.  Caution:  Don’t only call the local branch office where your financial advisor is located.  Call the company’s national service center or corporate headquarters every couple of months to verify the information on your investment statement.

It’s another annoying thing to do in an already rushed world.  It is your money and if you want to hold onto it…well you don’t need me to preach to you.

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 and we will answer you as soon as possible in the comments section of the blog article you asked about.
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Copyright © 2008-2010 “All Rights Reserved”

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

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Target date mutual funds have been a hot topic ever since they took such a dismal beating in 2008.  Many people, especially in their 401(k) programs, lost hundreds of millions of dollars when the stock market got wacked.  To prevent this from happening again, since target date mutual funds are so popular, congress has been looking at ways to minimize damage to people’s 401(k) programs that are using target date mutual funds.

So what is a target date mutual fund?

A target date mutual fund is a mutual fund, or basket of investments, that uses a specific date, like 2020 or 2025 or 2030, as a target date for when a person will need to use those specific funds.  That use could be, and usually is, for retirement although it doesn’t have to be. 

The idea is when you put your money into a target date mutual fund, and depending on when you will need it again, the fund will start off investing your money more aggressively.  As you approach your target date the investments in the target date mutual fund will become more and more conservative…protecting your money.  Or so it is thought.

So what happened in 2008 when the market went into a dumpster?  The portfolio managers of most target date mutual funds were not doing what they were supposed to be doing.  Many of the target date mutual funds that were reaching their target date of say 2008-2010 were overly aggressive in stocks causing the funds to lose a large percentage of their values.

People 65 years old or older, which had upcoming target dates of say 2010, where shocked to see the losses in their target date mutual funds which were supposed to be invested conservatively, yet weren’t.  Too much of their money was invested in stocks causing them to lose a great deal of money.

Congress doesn’t want this to happen again.  Target date mutual funds are very common in 401(k) plans with an estimated $245+ billion held in these funds.  That is a significant amount when you consider how many different mutual fund types are in the investment world.

Things are getting better

After the 2008 bloodbath within target date mutual funds, many of the mutual fund companies have decided that they don’t want to have that happen again.  Whether that is for your protection or their continued existence it is good to see many of the mutual fund companies taking the initiative to prevent this from happening again.

One of the methods that some of the fund companies want to put into place is to give the target date mutual fund manager more flexibility in how they invest.  The target date mutual fund, like all mutual funds, is guided by what the mutual fund’s prospectus directs. 

So if the mutual fund prospectus says that no more than 50% of your money will be invested in stocks then that is the way the fund is “supposed” to be run.  Of course this was a major part of the problem in 2008 when many mutual fund managers did not adhere to what the prospectus said.

Some fund companies are talking about re-balancing their funds more often…quarterly or monthly instead of annually.  Re-balancing refers to keeping the fund within the parameters of what it states such as 50% stock, 45% bonds, and 5% cash.  When the target date fund exceeds any of these parameters then that part that exceeds these set parameters is sold off and the money is re-distributed to bring the fund back into line with its 50%, 45%, 5% ranges.

Time will tell if these actions will help in the next financial meltdown…and there will be another meltdown.

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 and we will answer you as soon as possible in the comments section of the blog article you asked about.
•  Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.
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Copyright © 2008-2010 “All Rights Reserved”

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

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Every so often I like to “mix it up” with the In Simple Language topics.  I might get into a political rant and rave or beat up on some financial dirtbag crook I discovered.  But this post is different. 

This is not your typical In Simple Language financial post/article.  I am writing this because I feel it is that important for you to know about this topic.

As my regular In Simple Language reader’s remember, I had some medical issues a few months back.  These medical issues threw my life into a tailspin.  A tailspin I wasn’t sure I was going to come out of.

Part of the problem with my medical issues was the fact that the doctors did not know what was wrong with me.  It took them almost two months to figure it out and I was getting sicker.  I was getting ready to call “House, MD”.

But where the real issue was was also the fact that while I was in the hospital the hospital kept giving me food which contained gluten.  Diagnosed almost two months later, gluten allergy was a major part of what was making me sick in the first place. 

Now I realize that the hospital didn’t know this at the time but I had to ask myself what would have happened if I was wearing a medical bracelet or wearing medical ID tags telling them that I have this gluten allergy.  Things would have gone a lot smoother.

Since I can’t go back in time to change this, the least I can do is make sure it never happens again.  I now wear a medical bracelet which states my medical situation, allergies to medications, and what current medications I take.  I will not have to worry about eating or taking something that will compromise my health again.

Are there a variety of medical ID companies out there…yes.  I, however, choose and purchased a medical ID from American Medical ID and received excellent service and love the medical bracelet I now wear.  I like American Medical ID so much that I joined their affiliate program and provide their link on In Simple Language…look at the blog roll on the left.

If you would like to see what they have to offer go to http://www.americanmedical-id.com/?promo=insimplelanguage and check out the wide variety of bracelets and dog tags they offer.  Plus if you buy something then I will be compensated and have more funds to keep In Simple Language up and running for many years to come.

But in all sincerity, even if you don’t buy from American Medical ID, the important thing is to make sure you protect yourself in the event that you are not able to tell the hospital or doctor about your medical issues. Wearing a bracelet or dog tags or both will insure that that doesn’t happen.  Protect yourself.  It’s your health.  It’s your life. 

Don’t wait and jeopardize your health any longer.  Do it now.  Go to American Medical ID’s site and order your medical ID bracelet or dog tags today!  Here’s that link again:  http://www.americanmedical-id.com/?promo=insimplelanguage.

Thank You

Rich

www.insimplelanguage.com

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Recently I have written several blog posts about how to be more prudent in choosing your financial advisor.  In lieu of the Bernie Madoff’s of the world and other dirtbag financial advisors you need to be careful with who is handling your money.

It seems that our congressional members, at least some of them, agree with this…especially with the recent meltdown of the financial system in the United States.

Defender Dodd to the rescue

Just like a super hero from the movies or a comic book, Senator Chris Dodd, D-Conn. has taken it upon himself to protect the innocent, abused, and downtrodden American financial public.  Dodd will swoop out of congress and Washington, D. C. with his congressional draft bill called the “Restoring American Financial Stability Act of 2010” to save us all.

Defender Dodd, armed with his over 1300 page draft bill will beat up on all those financial offenders who dare to try and take advantage of the poor, defenseless American financial public.

This treatise of the financial malignancy that now permeates the American public financial system will solve, given time, all of our current financial woes with the unsavory financial dirtbags now serving the American financial public.  That’s a mouthful.

Any dirtbag who is caught taking advantage of any unsuspecting client will be sentenced to carry around the 1300+ document and memorize and recite all of its pages in various public forums chosen by the SEC (Securities and Exchange Commission).  If this isn’t enough, the dirtbag perpetrator will also be sentenced to at least one year of indentured servitude as a chauffeur to Senator Tim Johnson, D-South Dakota. Johnson is a Banking Committee member and another congressional defender of the American financial public.

You will not have to worry about your money being embezzled and stolen from you ever again with these  two champions of financial justice standing in the forefront protecting you…the innocent client being taken advantage of.

Enough Fun!  Let’s get Serious.

Okay, that’s enough fun at the expense of our ever vigilant congressional members.  Let’s see what this potential draft bill is really going to do for you.

As a Certified Financial Planner ™ I am required and have to sign a statement that I will put the best interests of my clients first and foremost.  Great idea and I fully agree with it.  This is not the case; however, with all financial advisors and this is where the problem begins.

Senator Dodd’s draft bill does not include a “fiduciary standard” but rather a study to see if it is necessary.  So what is a “fiduciary standard”?   Currently a financial advisor only has to recommend products that are suitable for a client’s needs.  This is called a “suitability standard”.

Did I give you a headache yet? No.  Good!  This doesn’t go far enough in many people’s eyes such as AARP and many other consumer associations.  And I agree.

Financial advisors who operate mostly with commission-based proprietary products, those usually developed and sold by their companies, don’t want a “fiduciary standard”.  They feel that the “suitability standard” is enough to protect the financial consumer.  There are exceptions so always discuss your thoughts with your financial advisor.

This is a complex topic and there will be more to come, both from congress and consumer groups.  Stay tuned for future updates or you can go online and Google the “Restoring American Financial Stability Act of 2010” and read all or part of the pending bill.  There are only about 1300 pages.

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 and we will answer you as soon as possible in the comments section of the blog article you asked about.
•  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.   

  Copyright © 2008-2010 “All Rights Reserved”

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

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

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