Friday, December 30, 2005

Pundit Watch Pundit Watch: Archives

I thought this would be interesting. Smartmoney invites the so called "experts" to make their one year predictions - which of course is just worthless. But if you're interested in ready worthless dribble from some people who think they are my guest!

To see how last years here!

1 year predictions are worthless - always remember that the future cannot be predicted.

Here are a few websites with predictions for 2005!

Using Astrology for predicting stocks.....not exactly a fiduciary method!

FoxNews Hounds Predictions:

Have fun and Happy New Year!!!

Scott Dauenhauer, CFP, MSFP

Thursday, December 29, 2005

Don't Buy the Bubble Talk The Pro Shop: Don't Buy the Bubble Talk

I always want to present both sides of the "bubble" when it comes to Real Estate. This is an interesting interview.

Scott Dauenhauer, CFP, MSFP

Wednesday, December 21, 2005

Interest Rates & Bonds

It has been a wild ride for interest rates and bonds over the past two years. Interest rates on the shortest term treasury bills have risen by over 400% since January 2004 from a low of .74% to 4.01% on December 5th, 2005. This has been due to the Federal Reserve raising short term interest rates 13 times since June of 2004.

Attached is an article I wrote that I couldn't post to this blog because of formatting issues. I encourage you to read it along with the Vanguard document (click on above link).

Scott Dauenhauer, CFP, MSFP

Is Real Estate a House of Cards?

Is Real Estate a House of Cards?: The Future for Investors - Yahoo! Finance

As you know I highly respect the author of this article, Jeremy Siegel. I think this article on real estate is a must read for all homeowners and those looking to buy rental real estate. About the only thing I disagree with Mr. Siegel on is that REIT's still offer a good opportunity. He compares them to government bonds in terms of yield and I think that is a mistake as REIT's are in a wholly different risk class, I don't think REIT's are a good deal.

Read this article.

Scott Dauenhauer, CFP, MSFP

Wednesday, December 14, 2005

Personal Finance Myths

Personal Finance Myths

Don't know who this guy is, but I like what he has too say. These 8 myths are worth taking a few minutes to read.

1. Paying tons of Mortgage Interest is WONDERFUL because it is tax deductible
2. If you refinance to a lower rate you will save interest long term
3. You pay no interest on a 0% car loan
4. All Variable Annuities are a ripoff
5. People who earn more money/live in expensive homes/drive fancy cars are "richer"
6. Always hold stocks long term to reduce taxes
7. Taxes should be fair
8. Good investments should always beat the market

You can read the justifications for each of these at the above link.

Scott Dauenhauer, CFP, MSFP

Fed boosts interest rates

Fed boosts interest rates, signals end game - Martin Wolk: Eye on the Economy -

Are we at the end?

Does it even matter? The Feds been raising rates since June 2004 and the rate on the 10 year treasury is virtually unchanged.

Yes, it does matter and the Fed has been very affective at getting short term rates to rise. The 3 month treasury was under 1% in June 04', in 2005 it crossed the 4% mark before dropping sharply to where it is today, 3.61%.

Rates matter and have an effect on everything, the question is really what will happen when the new Fed chief takes over next year.

Scott Dauenhauer, CFP, MSFP

Monday, December 12, 2005

Wirehouse sweeps raising concerns

Wirehouse sweeps raising concerns - December 12, 2005 - Dan Jamieson - InvestmentNews

Big brokerage firms are once again skirting their fiduciary obligations to their clients so that they can skim additional profits from client accounts. I don't have a problem with profit, but the brokerage firms are knowningly replacing higher yielding money market accounts with lower yielding bank deposit funds that allow the firm to them use those funds to lend out money, thereby generating additional profits - at the expense of the customer.

Now you know why the brokerage firms fought tooth and nail to not be called fiduciaries and be held to the same standards of accountability as independent fiduciary based advisors.

I hope the pending merger of TD Waterhouse and Ameritrade will not bring "bank deposits" to Ameritrade. If they do we will find another place for money market funds.

Scott Dauenhauer, CFP, MSFP

Saving as hard as quitting smoking

Study: Saving for retirement nearly as hard as quitting smoking - December 05, 2005 - Gary S. Mogel - InvestmentNews

Now you know why most people aren't saving for retirement....its hard!

Scott Dauenhauer, CFP, MSFP

Wednesday, November 30, 2005

The iPod Flea Video

The New York Times > Technology > Multimedia > Video

If you're an ipod enthusiast like I am you'll get a kick out of this video. You'll have to wade through a commercial, but the video is well worth it!


Monday, November 28, 2005

Existing home sales fall 2.7%

Economic Report: U.S. Oct. existing home sales fall 2.7% - Real Estate - Economy - Bond Market

Does this really surprise anyone? Notice thought that it doesn't say that prices fell.....

Scott Dauenhauer, CFP, MSFP

China: Friend or Foe?

China: Friend or Foe?: How Not to Ruin Your Life - Yahoo! Finance

Buehler........Buehler.......Buehler......This column, written by Ben Stein (Ferris Buehler's Day Off) has an interesting take on China and one that is not heard very often. I think Ben Stein and Jeremy Siegel are on the right thinking track about China, their prosperity will not end ours, but enhance it.

Scott Dauenhauer, CFP, MSFP

Four Ways to Avoid Overspending This Holiday

Four Ways to Avoid Overspending This Holiday: Money Matters - Yahoo! Finance

Suze certainly annoys me sometimes, I just can't stand watching her show, however she does have some good advice and this article is quite pertinent for the holiday season. One tip that is not included here is that you should start your holiday shopping by determining how much you can spend, then make a list of those people you need to buy for, then apportion your budget accordingly. If you find you don't have enough money to buy for everyone you're going to need to rethink how much you are spending and save more money for the holidays next year.

BTW, though I can't stand watching Suze I do endorse her book "Nine Steps To Financial Freedom."


The Dangerous Lever

The Dangerous Lever

The great Greek Mathematician Archimedes once said "Give me a lever long enough and a fulcrum on which to place it and I shall move the world."  A similar claim is being made these days about a different type of leverage, though this claim has no basis in fact and would not stand up to Archimedes logic.

What lever am I referring to? Home mortgage debt.

The newest pitch from the “charlatan” advisor community is to leverage your home by doing a “cash out” refinance and using the money to buy investment products.  This isn’t exactly new, though they have added a few twists.  

The first twist is the use of the latest mortgage creation, The Option ARM.  The Option ARM mortgage is an adjustable rate mortgage that gives you four different payment options.  The four payment options are:

  • The minimum payment (negative amortization)

  • Interest Only

  • Pay off in 30 years

  • Pay off in 15 years

I have many problems with this loan, the first being that it is an adjustable rate mortgage and for the most part I don’t like adjustable rate mortgages (especially in an era of record low interest rates).  The second is the structure.  Without getting into the confusing details the minimum payment is way below what the actual interest payments are on the loan which means that if you only make the minimum payment you will be adding to the loan balance (called negative amortization), not a smart move.  Option ARM loans should only be used by in certain situations and the people purchasing them should fully understand what they are getting into.

The pitch essentially by these charlatan advisors is to use this new Option ARM loan to refinance your existing property and use the extra cash and the extra cash flow to invest in your retirement.  The theory is that you can make more money by investing than letting is just sit as home equity.  To give you an idea of the difference in monthly cash flow with the Option ARM loan I will show you the payments on a $100,000 loan, as follows:

     30 year fixed rate                    6%          $600

     Interest Only                         6%          $500

     Option ARM 1.25% Start Rate     Minimum Pmt          $333

Additional monthly cash flow over Fully Amortized loan in 1st year:     $267

As you can see, you have freed up $100,000 in cash, plus $267 in cash flow per month to use for investments.  This sounds great, except that you are not paying off the $100,000 loan, it is growing by about $167 per month and you don’t have a fixed rate, which means that if interest rates get out of hand you will have a major problem.  The goal is to get a better rate of return after tax than the interest you are paying, the problem is that you are exposed to interest rate movements and the strategy only works if interest rates stay low, if they don’t, you lose.  Even if rates do stay low you may lose because of the investments you are in, which brings us to the second part of this bad idea.

Typically the investments being offered by the people touting this strategy are annuities.  It used to be just variable annuities, but now these charlatans have discovered another annuity with a higher commission, the Equity Indexed Annuity.  Both variable and equity indexed annuities are loser propositions.  The variable annuity is excessively expensive, typically in the 3-4% range annually, and the equity indexed annuity simply won’t perform as advertised.  The reason either of these products are utilized is because they generate large commissions, anywhere between 7 – 12%.  Of course, the really bad advisors will try to sell you on dumping the extra cash and cash flow into permanent life insurance policies which generate commissions that are much, much higher, but usually provide little value and most likely will hurt your financial situation long term.

This strategy sounds great to the unknowing public, but in reality these strategies are exceptionally dangerous to one’s financial health.  The “advisor” gets paid handsomely, as follows:

     $100,000 Mortgage

     Mortgage Commission      $1,000 - $2,000
     Annuity Commission          $1,000
     Total Commissions          $2-3,000

Of course most of these sales jobs are on much higher amounts; just imagine the commission on a $500,000 cash out refinance combined with annuity commission.

I do not endorse the above strategy, I think it is dangerous.  This is not to say that it couldn’t ever work, just that the probabilities are low and gambling with your home is not the best of ideas.  The Option ARM mortgage is not in and of itself evil, it is a legitimate mortgage product, but it needs to be used carefully and in the right situations.

Utilizing leverage is an age old strategy, but not one that most people should apply and definitely not by using the above mentioned strategy.  If an “advisor” offers to refinance your home and then use the proceeds to purchase investments (especially annuities) you should be on guard and get a second opinion, the transaction is most likely not in your best interest.

Thursday, November 24, 2005

A Hilarious Thanksgiving Turkey Plea!

I had a couple friends and clients send this too me and thought it was too funny not to add to the blog.

Happy Thanksgiving!


Wednesday, November 09, 2005

How Will Ben Bernanke Affect Your Returns?

How Will Ben Bernanke Affect Your Returns?: The Future for Investors - Yahoo! Finance

Who's Ben Bernanke? He just may be more important than the next presidential nominee(s). He has been named to be the head of the Federal Reserve once Alan Greenspan's term is finished in January. He will be confirmed by the senate and the reign of a new Fed chairman will begin, the question remains will it be a good thing or bad? I will be posting articles debating this question, this article is written by Jeremy Siegel, Professor at Wharton. I respect Siegel and value his opinions, you should read this article.

Scott Dauenhauer, CFP, MSFP

Friday, November 04, 2005

High Gas Prices: Blessing in Disguise?

High Gas Prices: Blessing in Disguise?: The Future for Investors - Yahoo! Finance

I think you'll find this balanced article on oil prices and their long term affects to your liking. There appears to be a new trend in long term oil prices that underly Mr. Siegals assertions.

Scott Dauenhauer, CFP, MSFP

SNL Spoof On Brokers - Part II

You're gonna love this!

Scott Dauenhaeur, CFP, MSFP

Biloxi, Mississippi - The Katrina Bomb

As many of you know I spent a week in Mississippi during the month of October. My mission was two fold - repair damaged roofs and tarp them off and to "muck out" houses that had been flooded.

It was a tiring but rewarding week and my heart was warmed by the resiliency of many of these people in the midst of what could only be described as utter disaster. Most of the astonishing damage was done obviously in the coastal areas, and as you'll see when you look at my pictures it literally looks like an atomic bomb went off. Amazingly there were area's that were barely touched, but most people felt some effect.

The first day we helped an 80 year old woman who had lived in her house for 40 years. Our job: remove everything including the drywall, insulation, flooring, and ceilings. When we were finished the house was basically a frame and a foundation, nothing was salvageable. There was a pile of junk probably 16 feet high in her front yard awaiting to be hauled away. You'd think this woman would have been devasted, but she was very up beat and very kind to us. She made it her mission to come back to the house every day to feed a bird that had survived the storm. She was thankful to be alive. I doubt I would have had her attitude had the same thing happened to me.

On a funny note, her neighbor had just purchased a brand new large screen Plasma TV before the hurricane didn't survive, but we didn't have the heart to throw it in the junk pile!

It will take many years to clean up the mess and rebuild, but it will get done and probably quicker than most people think. We saw hundreds of relief workers in Mississippi working hard to bring back America to a place that had suddenly turned into a war zone.

I had a few new experiences as well....

I ate Fried Catfish for the first time
I ate Fried Dill Pickles for the first time
I ate a bunch of fried stuff that I didn't really know what was inside....hopefully for the last time!

That week in Biloxi taught me how fortunate we are, but it also assured me that if we experience a disaster in California (earthquake anybody?) that we will have an onslaught of Americans on our doorsteps ready to help us pick up the pieces and move on.

As a side note, the organization that I was working under was Samaritan's Purse, which is run by Franklin Graham (Billy Graham's son).

Please take some time to view the photos by clicking on the link above. There are a lot and some may not make much sense, I haven't had time to edit them....

Scott Dauenhauer

The Myth of the "Independent" Advisor


Prospect: Tell me Mr. Advisor, what makes you qualified to give planning advice and manage my money? Also, are you fee-only?

Advisor: Well, for one thing I am completely independent and I am fee-based. I don't work for any of those evil brokerage firms you see advertised on TV.

Prospect: Wow, let's get started then!


So this little parody is a bit over the top, but it is demonstrative of the sales pitch used by most registered representatives today. Everybody is using the term independent (and also Fee-based) to try to make them appear to be better than someone else. Now, I fully endorse trying to separate yourself from the pack, I do it myself, however when I state my credentials they are actually true. When most registered reps (term used to describe advisors regulated by the National Association of Securities Dealers) tell you they are independent they fail to define what independence means for them. The only true independent advisors are the ones who are Registered Investment Advisors and are fee-only (meaning their compensation comes from their clients directly). All others are basically charlatans if they represent themselves as Independent.

Why? As a registered representative you must affiliate yourself with what is called a Broker/Dealer (hereinafter referred to as a B/D). A B/D is basically an entity that provides oversight of other brokers, the technical definition is "any individual or firm in the business of buying or selling securities for itself and others." There are many types of B/D's, but in the most basic sense you have the big brokerage firms (Merrill, Morgan, Smith Barney) and the "Independents". They are referred to as independents because typically the registered rep is not an employee of the B/D (as they are at the big firms), they are separate businesses.

Despite the fact that they are separate businesses the registered reps affiliated with B/D's have similar restrictions as to what they can sell to you as the reps at the big brokerage firms. The main difference is that reps at "independent" B/D's get to take home a bigger chunk of the commissions they earn. In fact, that is the main difference (as it applies to the consumer). An rep at an "independent" B/D has the same restrictions on what can be sold, the same conflicts of interests, and the same regulatory structure as the big brokerage firms. Actually, the regulatory oversight is usually less at an indepedent B/D, thus you have more risk of being sold a bad product. Iindependent B/D's got slapped just as hard as the big brokerage firms in the "shelf space" scandal in which it was learned that big mutual fund and annuity companies paid the B/D's money so that their products would receive preferred selling status.

What you should know about reps who claim to be independent is that this basically refers to how they receive their commissions. They are independent because they are not an employee, though they are regulated much of the time as if they were. The main reason reps go independent is because they get to keep more of their commissions (I'm all for that). However, being independent does NOT mean they are unbiased, does NOT mean they will act as a Fiduciary, and does Not mean they are fee-only. I have seen more people hurt by the so called "independent" planner than I care to talk about. In the end most independents are about product sales.

You must ask yourself, do you want an Independent, or someone who will put your interests first? Actually you can have both. As a Registered Investment Advisor with no outside affiliations to pull my strings I can give unbiased, independent advice that is free of product sales and commissions. Make sure you know who you are dealing with and always ask as many questions as possible, especially if someone is claiming the term "Independent" as a credential.

Scott Dauenhauer, CFP, MSFP

Wednesday, November 02, 2005

Impact to Retirement Plans of New Roth 401(k)

The above link will take you to a summary of the study with a link to the full study. The study points to the Roth 401k/403b as a new benefit available for employers to adopt beginning January 1, 2006 and shows how it can benefit employees.

I believe the Roth 401k/403b is a great option for a lot of people, not just the highly paid. I think a new concept in investing is beginning to take shape, that of tax diversfication and the Roth is at the center of it.

Tax Diversification refers to diversifying your investments into accounts other than just pre-tax, tax-deferred options. You should aim to have money in tax-deferred accounts, but you should also try to accumulate money in tax-free accounts, such as Roth IRA's and 401(k)/403(b)'s, this gives you the ability manage your taxes better in retirement in order to minimize what you owe.

I have a few interesting strategies for the Roth 401k/403b for people who have inherited money or expect to inherit money in the future to take a look at.


Monday, October 24, 2005

Bush Picks Bernanke to Lead Fed

Watch this closely, the replacement for Greenspan is one of the most important economic events both domestically and internationally. I believe a Fed Chairman does more to help or hurt the economy than most Presidents (and Congress) claim credit for. Breaking News: Bush Picks Bernanke to Lead Fed

Friday, October 07, 2005

Large IRA's not fully protected from bankruptcy or lawsuit seizure?

A great piece on what is and isn't protected from creditors when it comes to your IRA accounts. This year has brought a lot of clarity and strengthened rules to IRA's and how they are protected from creditors and a bankruptcy.

Scott Dauenhauer, CFP, MSFP

Tuesday, October 04, 2005

Slowing Is Seen in Housing Prices in Hot Markets

You may need to register to view this piece.

Last Thursday the Wall Street Journal came out with a piece on how mortgage lenders are tightening their standards on who they will issue loans too, this is an indication that the banks were making too risky of loans, but also it is an indicator for the housing markets as tighter credit standards lead to less people able to buy a home. Translated this means there may be less demand, combine this with rising interest rates and already high home prices (not to mention regulatory problems with Fannie Mae) and you have set the premise for the above linked article by the New York Times.

I am not saying a crash is imminent or that their will even be a crash, but if it hasn't already happened you will see some cooling in the hot markets. You will see more houses on the market, for longer time periods, and prices going lower - not higher (usually because they set their price to high to begin with).

Another problem is high gas prices, people are much less willing to live further away from their work if the extra savings they get is eaten up by transportation costs.

All I am saying is be careful, if you're buying a home to live in, make sure you have a long time horizon and that you can truly afford the place. If you are a renter, make sure you can cash flow the property - and make sure you have enough in reserves.

Scott Dauenhauer, CFP, MSFP

Monday, October 03, 2005

The Meridian Quarterly Update

The Meridian Quarterly Update

4th Quarter Commentary & Update

The third quarter actually saw some movement in the price of stocks. The first half of the year was quite flat, and the third quarter for the S & P 500 was also pretty flat, only up 2.73% for the year. Diversified portfolios are faring better due to small, value, real estate, and international stocks having a decent year. A diversified portfolio 100% invested in stocks is up around 7% through the third quarter, not bad. Many experts are predicting a great 4th quarter (similar to last year), I have no prediction. Short term predictions are a crap shoot, anything can (and usually does) happen.

I still believe that the long term prospects for a globally diversified portfolio are bright; though I do not expect similar returns as we’ve had in the past five years. My expectations for a diversified portfolio 100% invested in stocks would be in the 9 – 11% range, however this may be optimistic. Many believe returns will come in at the lower end of the spectrum at 7 – 9%.

For the last five years diversified portfolio’s have shined and taught everyone the value of diversity, however we must remember that their was a five year period previous to that where a diversified portfolio trailed the overall market by a wide margin. We must all be prepared to stick with a diversified portfolio even when it feels like it may not be the right thing to do. I have no idea what the next five years hold, but I do know that the best probability of capturing the returns that are available is through a globally diversified portfolio.

I could spend the next few pages writing about what everybody else is hearing about in the news: Oil prices, Interest rates, Hurricane Katrina’s effects, and real estate but I don’t feel that will add any value to your day as I cannot predict the effects of any of the events related to those news events. I have written about much of those events or linked to articles about those events on my blog at Predicting the future is a fool’s game, planning for the future continuously and using probabilities to sharpen your planning is the wise way to go.

Instead, I have a few announcements for you.

Enclosed you will find a copy of the invoice for your third quarter management fee. You do not need to do anything with this except review it for accuracy and file it (unless you normally by the invoice by check). The fee will be automatically debited from your Ameritrade account.

Mississippi Trip – Out of the Office from October 8th – October 15th

I have the opportunity to go to Mississippi this coming Saturday for a week to help rebuild homes destroyed by Hurricane Katrina. I do not know what my communications will be like during this time period as I doubt they have high speed internet access. I will have my cell phone, but don’t know if it will be working or how often I will be able to check messages.

In my place while I am gone a good financial planning friend of mine has volunteered to take any “emergency calls” from my clients, his name is Scott Brewster and his contact information is as follows:

Scott Brewster
Brewster Financial Planning
Phone 646-249-9880

I ask that you not contact him for routine information, but only if you truly need help immediately. I will only be gone for five business days and can address most concerns as soon as I get back.

No 3rd Quarter Reports Due to Switchover

I am happy to announce that I have signed a contract with a company that will enhance the existing performance reporting capabilities of Meridian Wealth Management. Over the past four years I have spent nearly $10,000 and hundreds of hours working on a portfolio accounting system that just hasn’t worked out. Though I was using the top software in the market it was clunky, inefficient, and occasionally inaccurate. After a near two year search I believe I have found a company that will be able to provide a solution for me and you that will be truly beneficial.

The new solution will allow you access via the internet to all your accounts in one place and allow you to run any report you want at any time. I will be meeting with you to introduce the different reports that will be available and you can choose which one’s you want to see. I will still be mailing or e-mailing you a consolidated quarterly report as well.

As I get this system up and running I am sure there will be some difficulties so I ask that you bear with me. I need to transfer all cost basis information into the new system and this may take some time, in fact it may take most of the fourth quarter. I also will be setting up individualized target portfolios for each client so that you will be able to see where your portfolio is in relation to where we want it to be.

Many of you have accounts that are held outside of Ameritrade and TIAA-CREF and thus I don’t have daily downloads for those accounts. In the past I have manually entered in the statement information each quarter in order to give you an accurate picture of your portfolio. The new system has additional capability that will allow many of your accounts to be downloaded electronically and thus eliminate me manually inputting the information, I hope this part of the system will be up and running before January 1st, 2006. I cannot guarantee outside accounts will be available by that date, but I am working hard to make it happen. The goal is to produce a report that is true and captures all your assets. In some cases there will be an additional fee for the outside account service, I will communicate this directly to you.

I am confident that once up and running this new system will provide great value to you as well as to me. I hope to meet with each of you during the fourth quarter to introduce you to the new system and get you a user name and password. Due to the transition no 3rd quarter reports will be issued.

Thank you very much for your patronage, in many ways it is because of you that I am able to leave for a week to Mississippi to help serve others who have had their lives torn apart, I am in your debt for this opportunity.

Scott Dauenhauer, CFP®, MSFP
Meridian Wealth Management

Tuesday, September 27, 2005

The Pro Shop: Monkey Business

This is an article/Interview with William Bernstein, my favorite financial author. Much of my investment philosophy is derived from reading Bernstein. I think you will find this article very different than others who purport to "manage money". The Pro Shop: Monkey Business

Scott Dauenhauer, CFP, MSFP

Why We're Outgrowing Retirement

An interesting point of view from a popular futurist. I haven't read his book, but the history in this column about retirement is worth your investment of time.

Why We're Outgrowing Retirement: Reinventing Retirement - Yahoo! Finance

Scott Dauenhauer, CFP, MSFP

Move Over U.S.A.: The Future for Investors

Jeremy Siegal has begun writing a column for Yahoo: Finance, I will be including his columns on my blog and in my newsletters (links) as I believe he is well spoken and smarter than I am. I don't totally agree with some of his recommendations investment wise, but we aren't that far off. I have read his new book The Future For Investors and it is well worth reading, even for those who hate books about finance/economics. I encourage you to read his columns, they are very enlightening.

Move Over U.S.A.: The Future for Investors - Yahoo! Finance

Scott Dauenhauer, CFP, MSFP

The Meridian RSS Feeds

For those of you who are users of RSS feeds, The Meridian Blog is now available for users of the My Yahoo services. My Yahoo is a free service and if you subscribe to it you can click on the button on the left side of this page title "My Yahoo" and all my blogs will automatically appear on Your Yahoo personalized page. For those of you who have other RSS readers please let me know what they are and I'll try to get the feeds into them.

Yet another unique service of Meridian Wealth Management. For those of you who don't know what RSS feeds are, don't worry, just type Really Simple Syndication into Yahoo or Google. Or just sign up to use My Yahoo at

Scott Dauenhauer, CFP, MSFP

The autopilot Myth: Pilots Have Value

How many people really pay much attention to the pilots of our aircrafts? For the most part we think they are just locked into the cockpit with the plane on autopilot, they don't actually do much work (Pilot Clients, keep reading before firing me!). In reality they are doing a lot more than we think (have you ever seen all the flips and switches inside a cockpit?), they are there before and after take-off inspecting the plane, they have a series of pre-takeoff and post-landing check lists that they go through to ensure the safety of everyone on board - none of us notice this though.

What we pay attention to is how fast we can get on board, how much leg room our seat have, are we able to store our five carry-ons, and whether we take off and land on time. It's not until a situation like what happened with JetBlue airlines this week that we realize the value of compentent, experienced, FULL TIME pilots. Imagine if that plane was just set to autopilot and no pilots where in the cockpit, everybody would have died, no computer in the world could have pulled off that landing and kept the passengers as calm as the heroic pilots did. Or imagine that the pilot didn't have the experience. Doesn't it give you peace of mind to know that there is somebody there in case of emergency who can guide you through it, isn't there value in the all the little things the pilot does that nobody sees?

While I cannot in good conscience compare myself to that heroic pilot, or any pilot for that matter I do believe their is a corollary to what I do for my clients. In a sense I am your financial pilot, keeping you from veering off course and in emergency situations keeping you calm and safe. This doesn't mean we won't experience bumps along the ways (portfolio fluctuation) or occasionaly have tough landings (negative returns), but there is value 100% of the time, even if you can only see if it 1, 2, or 3% of the time. I would like to invite you to review all the procedures I go through when working with my clients, the value justification can be viewed by clicking here.

Thank you for flying Meridian Airways.......Ok, perhaps not the best analogy with all the airline bankruptcies......not all analogies can be perfect!

Scott Dauenhauer, CFP, MSFP

Some Laughter For Your Day

Hi Folks,

This blog has been pretty serious lately, so I thought I’d bring a little humor to your life, we could all use it.

1. Ever wonder about those people who spend $2.00 apiece on those little bottles of Evian water? Try spelling Evian backwards: NAIVE

2. There are three religious truths:
a. Jews do not recognize Jesus as the Messiah.
b. Protestants do not recognize the Pope as the leader of the Christian faith.
c. Baptists do not recognize each other in the liquor store or at Hooters.

3. If people from Poland are called Poles, why aren't people from Holland called Holes?

4. If a pig loses its voice, is it disgruntled?

5. Why do croutons come in airtight packages? Aren't they just stale bread to begin with?

6. Why is a person who plays the piano called a pianist but a person who drives a race car is not called a racist?

7. If lawyers are disbarred and clergymen defrocked, doesn't it follow that electricians can be delighted, musicians denoted, cowboys deranged, models deposed, tree surgeons debarked, and dry cleaners depressed?

8. If Fed Ex and UPS were to merge, would they call it Fed UP?

9. Do Lipton Tea employees take coffee breaks?

10. What hair color do they put on the driver's licenses of bald men?

11. I was thinking about how people seem to read the Bible a whole lot more as they get older; then it dawned on me .....they're cramming for their final exam.

12. If it's true that we are here to help others, then what exactly are the others here for?

13. You never really learn to swear until you learn to drive.

14. If a cow laughed, would milk come out of her nose?

15. Whatever happened to Preparations A through G?

16. As income tax time approaches, did you ever notice: When you put the two words "The" and "IRS" together it spells: "THEIRS"?

Have a wonderful day,

Scott Dauenhauer, CFP, MSFP

Friday, September 23, 2005

Hillarious Spoof of Modern Day Brokers

Saturday Night Live ran a hillarious sketch about a broker who is completely honest with a group of people in a town hall meeting. The broker is calm, cool, and collected as he tells them how he doesn't really care and he is actively working against their best interest. The reaction of the audience is quite funny. I have posted the video on my website, you should be able to watch it by clicking the above title link. Let me know if you have any problems.

The difference between a broker at a brokerage firm and myself is that I am required by law to put your best interest first, to be your FIDUCIARY. The word Fiduciary to a broker is like kryptonite to Superman.

Enjoy the clip!

Scott Dauenhauer, CFP, MSFP

Tuesday, September 20, 2005 - Cost of managing TSP continues to shrink (9/19/05)

The Federal Thrift Savings Plan is a great demonstration of two things - one, that a low cost plan can work and two, that you can take low costs to an extreme. While low in cost this plan is run like the typical bureaucracy in Washington, it is completely NON-user friendly. The recordkeeping and website is absolutely horrendous yet the plan is held up as a pillar of how a retirement plan should be run. I like this plan, but it needs some style, educational tools, better online management, and a little more choice. I like the low fees, but would rather see them slighlty higher if it meant a better run plan for the participants.....perhaps they should take a cue from Apple and combine style, creativity, and substance.

Scott Dauenhauer, CFP, MSFP - Cost of managing TSP continues to shrink (9/19/05)

Pay For Long Term Care Insurance via 401k or 403b?

This is a good idea and one that we should all support. We need to find a way to make long term care insurance affordable and the ability to use pre-tax dollars saved in 401k or 403b plans is one way we can do that.


Thursday, September 15, 2005

A "Moronic" Proposal

I don’t normally post articles that are not available for public viewing (this is subscription only) because it is copyrighted material. I hope the Wall Street Journal will forgive me just this once because this editorial hits the nail on the head on Hurricane Relief. This article echoes my thoughts that I put forth on this blog last week.

Scott Dauenhauer, CFP® , MSFP

A 'Moronic' ProposalSeptember 14, 2005; Page A20

Some public-spirited folks in Bozeman, Montana, have come up with a wonderful idea to help Uncle Sam offset some of the $62 billion federal cost of Hurricane Katrina relief. The Bozeman Daily Chronicle reports that Montanans from both sides of the political aisle have petitioned the city council to give the feds back a $4 million earmark to pay for a parking garage in the just-passed $286 billion highway bill. As one of these citizens, Jane Shaw, told us: "We figure New Orleans needs the money right now a lot more than we need extra downtown parking space."

Which got us thinking: Why not cancel all of the special-project pork in the highway bill and dedicate the $25 billion in savings to emergency relief on the Gulf Coast? Is it asking too much for Richmond, Indiana, to give up $3 million for its hiking trail, or Newark, New Jersey, to put a hold on its $2 million bike path?

And in the face of the worst natural disaster in U.S. history, couldn't Alaskans put a hold on the infamous $454 million earmark for the two "bridges to nowhere" that will serve a town of 50 people? That same half a billion dollars could rebuild thousands of homes for suffering New Orleans evacuees. One obstacle to this idea apparently will be Don Young, the House Transportation Committee Chairman who captured the funds for Alaska in the first place. A spokesman in his office told the Anchorage Daily News that the pork-for-relief swap was "moronic." Sounds like someone who wants Mr. Young to become "ranking Member" next Congress.

In all there are more than 6,000 of these parochial projects -- or about 14 for every Congressional district -- funded in the highway bill. The pork reduction plan is particularly appropriate as a response to Katrina, because we have learned in recent days that one reason that money was not spent on fortifying the levees in New Orleans was that hundreds of millions of dollars were rerouted to glitzier earmarked projects throughout the state of Louisiana.

We're hearing all sorts of bad ideas about how to offset the $62 billion of spending already authorized for Hurricane Katrina relief. Cancel the Bush tax cuts, raise the gasoline tax by $1 a gallon, increase deficit spending, and sharply cut spending on national defense and the war in Iraq. In Washington, it seems, everything is expendable except for the slabs of bacon that are carved out of the federal fisc to ensure re-election.

The glory of what is happening in Bozeman is that taxpayers are proving to be wiser about priorities than their politicians. We like the suggestion by Ronald Utt of the Foundation Heritage that, when the new levee is built to protect the Big Easy from future storms, it should bear a bronze plaque stamped: "Proudly Brought to You by the Citizens of Alaska."

Friday, September 09, 2005 - First Look: Apple's Dazzling iPod Nano

Ok, I know, this is supposed to be a blog about finances.....but I couldn't resist. The new IPOD Nano is incredibly cool, smaller than a business card and the width of a pencil, plus it has a color screen that displays pictures - oh, and it plays music, podcasts, books, and even games. For those business minded people who are looking to buy an MP3 player but want to use it as a write off.....this might be your best bet(see, I did get some finance related stuff in here), the IPOD NANO stores all your contacts & appointments and syncs with Oulook - now you have a business excuse to buy this cool gadget, though check with your accountant before writing it off!!

The article link below comes with a picture, it is dazzling - I am buying today (if i can find one in the stores) in the color black! - First Look: Apple's Dazzling iPod Nano

Wednesday, September 07, 2005

Alaska's $223 million "Bridge to Nowhere"

I read this story with a deep sickness in my stomach, did Congress think they could hide this? Did Rep. Donald Young think that he was bringing home a prize to his Alaskan constituency? This my friends is government waste at its worst and it is sick.

We are now spending about $1 billion per day to provide relief and rebuilding to New Orleans - perhaps Alaska could forgo their pork windfall and instead allow it to go to Americans who will actually use it for something useful.

Perhaps we should all take a look at the last few bills that have passed in congress for pork - there is lots of it - then ask each individual state who recieved it to forgo it. I am under no impression that this will happen, after all we can just pass another supplemental spending bill and print/borrow another $50 or $100 billion. A billion here, a billion there - pretty soon it all adds up to real money! All those bridges to nowhere should not be built, instead lets spend some money building a bridge to somewhere......I don't know, say Lousianna and maybe Alabama? U.S.

Friday, September 02, 2005

Telegraph | Money | Forbes predicts oil will drop to $35 within a year

Let's keep politics out of this - I agree with Forbes in this article. I don't believe oil prices are high because of long term supply and demand problems. I see oil prices falling as well. Of course, my predictive abilities have been proven to be not that great, however I think this article brings at least some balance to the debate on oil prices.

Telegraph | Money | Forbes predicts oil will drop to $35 within a year

Scott Dauenhauer, CFP, MSFP

Monday, August 29, 2005

Inverted yield curve points to a weaker Fed, not a recession - Jul. 14, 2005

What the heck is an INVERTED YIELD CURVE? For those sports enthuiasts it isn't a new pitch in baseball. An inverted yield curve refers to a point in time where long term interest rates are lower than short term interest rates. Why is this important to you? Read the article an find out! Actually, you don't have to read the article, that is what you pay me for, but you will be hearing a lot more about this in the coming months. It seems that we are entering into a period where we get to have our cake and eat it to - low interest rates to finance our long term mortgages and high short term interest rates to invest our money.......of course, it may not all be good. I'll be keeping my eye on this.

Inverted yield curve points to a weaker Fed, not a recession - Jul. 14, 2005

Scott Dauenhauer, CFP, MSFP

PIMCO Bonds - Everything You Need to Know About Bonds


You pay me to know this stuff, but I know that many of you would like to better understand investing and this is a good article on bonds. PIMCO is a leader in bond fund management and has put together a primer on understanding them (bonds that is). Enjoy!

PIMCO Bonds - Everything You Need to Know About Bonds

Scott Dauenhauer, CFP, MSFP

Sunday, August 28, 2005

Equity Is Altering Spending Habits and View of Debt - Los Angeles Times

An interesting article highlighting the differences between generations and the "new" way of thinking about real estate. The one thing I take from this article is that is SOUNDS awfully similar to lots of articles I read in 1998, 1999, & early 2000 about growth and technology stocks.

I've said that I don't think there is a national bubble, but there are pockets of unsustainable price increases. If Americans believe the way this article suggests than a bubble may be on the way.

Just for the record, I do not agree with the "new" way of thinking this article talks about. I tend to like the earlier generations way of thinking - pay off your house and avoid debt when possible.

Equity Is Altering Spending Habits and View of Debt - Los Angeles Times


Saturday, August 27, 2005 - Business - Money Matters - Can You Identify a Housing Bubble?

Get ready for an onslaught of articles similar to this one. Greenspans latest comments will start another round of "real estate bubble" talks. The advice in this article is good and is the advice that I give - be careful, and know your time frame. Gail Buckner is the reporter for Fox in this article, we were in the same Masters class at the College for Financial Planning. - Business - Money Matters - Can You Identify a Housing Bubble?

Scott Dauenhauer, CFP, MSFP

Friday, August 26, 2005

Teachers have few defenses when investing in 403(b)s

Teachers have few defenses when investing in 403(b)s

I spent hours working with the reporter for this article and think he did a great job. This mainly affects educators, but everyone should read it.

Scott Dauenhauer, CFP, MSFP

US heading for house price crash, Greenspan tells buyers - Economics - Times Online

US heading for house price crash, Greenspan tells buyers - Economics - Times Online

Anybody remember "Irrational Exuberance" and the taking down of the high flying NASDAQ and Growth Stock a few years back? Well, here is part II for Greenspan. Greenspan believes housing prices are too high and is warning about pushing prices higher. Is this the shot heard around America that will result in another crash? Doubtful, but we should heed his advice.


Wednesday, August 24, 2005

Down With Mutual Funds? - Newsweek Business -

Down With Mutual Funds? - Newsweek Business -

Thank you Jane! Jane Bryant Quinn once again confirms that that money management through active managers is a losers game. She interviews the manager of the highly successful Yale University Endowment, his advice - use index funds.


Monday, August 22, 2005

Initiatives to Promote Savings From Childhood Catching On

Initiatives to Promote Savings From Childhood Catching On

I have come up with a slightly different version of what this article talks about. This article poses giving $500 to every child born in the and for the money to be used for college or retirement. My idea would be to give much more money and let it grow only for retirement, however the money would only be a loan which would be paid back upon reaching adulthood. The loan would be paid out of the same funds that we currently pay to social security, thus there wouldn't be an extra burden.

Short term costs would be astronomical, but the long term benefits would be absolutely incredible.


Thursday, August 18, 2005 Consumer Action: Successful Landlords Aren't Wimps Consumer Action: Successful Landlords Aren't Wimps

THINKING OF BECOMING A LANDLORD? Join the club. A record 1.8 million homes were purchased as rental properties last year, according to the National Association of Realtors — a 14.4% increase from 2003. In fact, nearly one in every four homes bought in 2004 (23%) was a second-home purchase meant to be rented out.

A great article from Smartmoney on Rental Real Estate, if you are anticipate becoming a landlord read this.

Scott Dauenhauer, CFP, MSFP

Saturday, August 13, 2005 - Equity-indexed annuities scrutinized - Equity-indexed annuities scrutinized

I think that most of the people selling these annuities are dishonest or naive. They don't understand the product and they mislead you into believing that you can earn a better return than is really possible. Most of these contracts are incredibly difficult to understand and are designed to benefit the insurance company, not the individual. Stay away from Equity Indexed Annuities.

Scott The Pro Shop: Should We Scrap the Tax Code? The Pro Shop: Should We Scrap the Tax Code?

"WHAT IF APRIL 15 WERE JUST another day? Just imagine: no more digging through shoe boxes full of receipts, no more standing in line at the post office, no more panicked calls to your accountant. "

Interesting article about a proposal in congress to eliminate the IRS. I read the book (The Fair Tax) and found it quite interesting. I am not yet committed to the idea, but am much more open to it now than I was before reading the book. Imagine not having the IRS to deal with......


Thursday, August 11, 2005

Communications Back Up

E-mail is working now. My website is still down, but now in my control. I hope to have it up again soon. In the meantime has been forwarded to this blog.

Please send all e-mails to my normal address,


Tuesday, August 09, 2005

Communication Problems

While on vacation I had some e-mail problems. I was locked out of my webmail and could not respond to e-mails many of you sent from Tuesday August 1st through Saturday August 6th. If you sent an e-mail during this time period it was likely lost in cyberspace and I ask that you kindly resend it.

The problem stemmed from my e-mail box being full,
but not being able to empty it. I have fixed the
problem by switching to a new provider (Yahoo Web
Hosting) where access will be easy and my inbox will
never be full. This process may take a few days and
during this time you may have your e-mails to me
returned. Some e-mails are getting through, others
not. My website may also be down for a day or two
while the new provider takes over the daily

I apologize for any inconvenience this
may cause you, I assure you I am not happy about
the situation either. In the meantime, if an e-mail is
returned to you, you may respond to me at This problem should be
resolved by tomorrow.


Wednesday, July 20, 2005

Vacation & New Home

I will be on vacation from July 20th through August 6th. I will be checking e-mail and voicemail, but don't expect any quick responses - I'll be focusing on the beautiful Caribbean!

On a separate note, I moved my family to Murrieta California. Orange County home prices were just to out of control for me to want to purchase something. We were able to build a 3,000 sq. ft. home on a big lot for less than the price of a condo in Orange County. Don't panic, I am not leaving the O.C. I will still make my way into the OC once or twice a week to meet with my wonderful clients. I will still be available to all of you and I am not closing my office in Laguna Hills, it will remain open (though I may end up sharing it with somebody)!

So far even with the heat we love it out here in Murrieta. We live on a cul-de-sac and my son has about a dozen friends he can play with at any one time! So far three neighbors are putting in pools and I suspect a couple others will as well.....this is great because it means I don't have to spend MY money on a pool!!

What really amazes me is that we paid less per sq. ft of living space for this home than we did our townhome five years ago in Aliso Viejo. I am of the opinion that OC prices are simply to high, maybe they won't crash, but it is doubtful they will continue at anywhere near the pace of the past few years........of course what do I know, I have been wrong about real estate for past two years now!

Best wishes to all, I'll be checking e-mail and voicemail while sailing on the Caribbean, just don't expect any quick responses!!


Meridian Quarterly Review

June 30th 2005

The year through June 30th has been pretty much flat. The major U.S. Index the Standard and Poors 500 was down about .77%. REIT’s were the shining stars of the quarter as they recovered from their first quarter slump and surged nearly 15%. I am of the opinion that the run in REIT’s is about over and that new allocation made to REIT’s should be small. Existing allocations should be trimmed to match your individual Investment Policy Statement.

A diversified portfolio of stocks and bonds was up about 1% as of June 30th; once again a diversified portfolio has beat out the S & P 500. While I am happy that a diversified portfolio has continued to hold its own and outperform the major indexes you should know that this won’t always be the case. Occasionally the marketplace goes crazy and favors individual asset classes such as large growth stocks (for which the S & P 500 is a good proxy). For example, during the period between 1995 and 1999 the market as represented by the S & P 500 had an annualized return of 28.30% versus a diversified portfolio return of only 16.22% (only!). While most people would have been thrilled earning 16% annually most were extremely unhappy because they trailed the market by over 12% annually for those five years. The following table shows the difference in dollars an investor would have had with each strategy at the end of the period (1999) had they invested $10,000 in each strategy in 1995:

S & P 500 Diversified Portfolio

$34,800 $21,200

As you can see the market based portfolio had over $13,000 more in it at the end of year five; nearly 64% more than the diversified portfolio. I remember the media and all the wire house brokers talking about the death of diversified portfolios and that large cap growth stocks were the only place to invest an individual’s money. They turned out to be totally wrong and lost investors billions of dollars because they strayed from the number one rule of investing, diversification.

During the period of 2000 – 2004 the Standard & Poors annualized return was -2.46% while a diversified portfolio of stocks was up on average 10.41%, a near perfect reversal of the previous five years. The diversified portfolio returned on average almost 13% per year more during this five year period. The period taken as a whole (January 1995 – December 2004) saw the S & P 500 average 11.87% annually, while a diversified portfolio averaged 13.28%. Over the ten year period the diversified portfolio performed better and with much less fluctuation. At the end of the ten year period a $10,000 initial investment (starting January 1995) in each strategy would have yielded the following results:

S & P 500 Diversified Portfolio

$30,700 $34,800

My point with all of these statistics is not to make your eyes rollback into your head but to demonstrate two things. First, diversified portfolios don’t always win in the short term, they may drastically under-perform the overall market; but those who persevere should be aptly rewarded. Second, a diversified portfolio has less risk and more potential for return. A long term investor is better off in a well diversified, low-cost, index based portfolio than following the latest trends or listening to Wall Street.

We may be entering into another period where diversified portfolios under-perform; if we are this is a perfect time to take stock (no pun intended) and hunker down for the long run.

Enclosed are your quarterly statements, please let me know if you would like to meet to go over them in person.

Please refer to the Meridian Monthly e-mail for the latest on what is going on in the world of finance and what is going on in my life. If you are not receiving the Meridian Monthly e-mail please e-mail me at and let me know.

I Finished My Masters in Financial Planning!

Very few planners in the United States have a Masters degree in financial planning and very few have the credentials that I have. I promise to continue to make education a top priority so as to always be the most qualified financial planner you know.

The program I went through was the Masters of Science in Financial Planning through The College for Financial Planning. I started the program nearly five years ago and expect to have the degree conferred in September.

It has been a long and sometimes ardous process. I spent every weekend this year working on finishing up this program and am glad it is now behind me. Now I can take a nap instead of studying on Saturday and Sundays!

Thanks again for everyone's support.


Monday, July 18, 2005

Forum - Roth 401(k) on the Horizon--Worth the Effort

Forum - Roth 401(k) on the Horizon--Worth the Effort

Some great technical details about the upcoming Roth 4011(k)/403(b) option. I believe this is a great change and will add a lot of flexibility to financial and estate planning.


Tuesday, July 12, 2005

Real Estate Investment Trusts Increase 15% in 2nd Quarter

Well, I was wrong again. For the past year I've been pulling back on REITs in client portfolios. Nothing major, just rebalancing to a target allocation or lowering the target allocation (where it used to be 10% of equities, it would now be 5%). In new portfolio's I haven't even added an allocation. Normally I don't mess with my target allocations as I'm a buy and hold policy kind of guy. The REIT run just seemed overdone....imagine my surprise when I looked up some of the major REIT funds and found them up 14-15% during the second quarter.

Do I regret my decision, not really. Would I have liked to earn the 15%? Sure, but it is irrelevant. REIT's are now yielding between two and five percent, way below there normal 7% and they just seem way overpriced, especially with interest rates trying to rise (a whole other story). I am not changing my mind and jumping back in, REIT's are still overpriced in my eyes, if the prices fall and bring yields back to the 6% range, perhaps I'll start nibbling again...until then, I'll take the chance of being wrong.


Evaluate 403(b) Plan Sooner, Not Later

Evaluate 403(b) Plan Sooner, Not Later

This is the same article as posted below, but this time it appeared in the Washington Post. The article appeared in hundreds of papers across the United States!


Tuesday, July 05, 2005

Evaluate 403(b) Plan Sooner, Not Later

Evaluate 403(b) Plan Sooner, Not Later

A good article for teachers which quotes yours truly! My quotes have literally been featured in hundreds of newspapers across the country including The Wall Street Journal, Smart Money Magazine, The Kiplinger Letter, Kiplingers, the Orange County Register, the San Diego Union Tribune, and many, many others.

Scott Dauenhauer, CFP

Thursday, June 30, 2005

Financial Porn Can Seriously Distract

Financial Porn Can Seriously Distract:

I'd love to reprint this article in this space so you don't have to go to another link - but alas that would be copyright infringement and we wouldn't want that (yes, I pay for my downloaded music)!

Click the above link and read a great article about the pornograhpy that is fed to you everyday by the financial press. It's a very interesting article that should tickle your fancy!!!


�John P. Scordo, Esq. -

For those of you who like to read some of what I read to keep up to date on the latest in investment research, the above link to should prove fascinating.


Wary of Stocks? Property Is an I.R.A. Option - New York Times

Wary of Stocks? Property Is an I.R.A. Option - New York Times

This is not a recommendation, purely an FYI. Real Estate in an IRA can be good for the right people, but it comes with a few headaches and rather high fees.


Thursday, June 23, 2005

Betting Against the House

Betting Against the House

From one end of the spectrum to another. This guy sold his house and is renting, betting on prices to fall.


Larry Kudlow on the Tax-Advantaged Housing Market 2005 on NRO Financial

Larry Kudlow on the Tax-Advantaged Housing Market 2005 on NRO Financial

Another take on real estate, one worth reading. Contrast this with the following article from the LA Times in the post before this one.

My point is not that there is or isn't a real estate bubble, simply that there are plenty of points of view and we don't know who will be right. The future is truly unpredictable, of course in some areas housing prices are down right ridiculous.


Ameritrade to buy rival TD Waterhouse

Ameritrade to buy rival TD Waterhouse

For those clients of mine who I manage for this news is important. I had hoped that Ameritrade would acquirer TD Waterhouse as opposed to Ameritrade being acquired by E-Trade. I think this will be a good combination and we will all benefit from expanded services. If you have questions on this merger please don't hesitate to call or e-mail me.


Wednesday, June 22, 2005

The Many Evils of Inflation - Mises Institute

The Many Evils of Inflation - Mises Institute

I don't know anything about the Mises Institute or their politics, please don't recieve this posting as a political statement. What I want you to focus on with this article is the devastating effects of inflation on your money and how government mismanagement of money is a leading factor in the loss of purchasing power over time.

Inflation is your enemy in life and retirement, unless you are a debtor, then it is your friend. Since most of us are debtors until our later years inflation looks good, but when we hit those retirement years it can wipe out your money, though it does it silently and over time, inflation is slick. Most people fear losing money in the stock market, but ignore the losses they are racking up each year through the loss of purchasing power.

Happy Readings!

Scott Dauenhauer, CFP

Tuesday, June 21, 2005

There Are No Guarantees & The Future is Impossible to Predict

Every time I turn around these days I see old financial products and new financial products being hawked by using the most emotional word in the english lexicon "Guarantee." As if by saying the word guarantee it makes it so. The fact of the matter is that guarantees don't really exist. A guarantee implies no risk, if you doubt that I challenge you to type "no-risk guarantee" into google.

If I say that there is no such thing as a guarantee when it comes to financial products, why is it that we always see this term used? It is used because marketers know that it gives their prospective buyers a "warm fuzzy" when they hear the word - it makes them feel safe and protected. To most people what is being guaranteed and what they think is guaranteed are two different things.

The most important concept in money is purchasing power, yet most people have no idea of what it means. Purchasing power refers to the amount of goods and services an individual can buy at any given moment in time. An example of a guarantee not actually being a guarantee is with insurance companies who issue immediate annuities. An immediate annuity is basically an income stream that you can't outlive. You hand the insurance company some money and they hand you a monthly check till you die, guaranteed.

Sure the monthly check is guaranteed by the insurance company, but what if they go out of business? The state will most likely come in and rescue you, thereby making you whole, but what if the state doesn't have the money to rescue you and what if the federal government refuses to rescue you - your income is gone, it's not really guaranteed. Of course, the likelihood of these events happening are small, but that doesn't mean they won't happen. More importanly however is that the guaranteed income stream provided by the insurance company isn't really what you thought you were purchasing, thus who cares about the guarantee. What good is an income stream if it doesn't buy you anything? Have I lost you yet?

Let me give you an example. Say you gave an insurance company $100,000 today and in exchange they will pay you $500 per month for the rest of your life. Today, that $500 buys you groceries for two months, no problem. However, ten years from now the $500 monthly income stream will only buy you 1.5 months of groceries. Twenty years from now the income stream will only purchase you 1 month of groceries.....half of what the money bought you the day you started. Thirty years from now your $500 will buy you about three weeks worth of groceries....better make them last. The point is that though you thought you were buying a guaranteed income that would buy you the same amount of goods and services each year, in reality you were simply buying $500 dollars a month in advance for the rest of your life, the fact that the $500 buys you less and less each month was not part of the sales pitch and "purchasing power guarantee" was never mentioned.

The same goes for government bonds. They are safe in that you will never lose your dollars, but if your dollars buy you less and less YOU ARE LOSING MONEY. A guaranteed return of dollars is different from a guaranteed return of purchasing power and purchasing power is what you should be focusing on.

Given that nobody can consistently predict the future there are no scenarios in which a guarantee can really be called a guarantee, of course this is mostly sematics. My point is that you should ignore the snake oil salesman who tout "guarantees" as a way to sell their products, they do so because they know that their product is so weak it can't be sold unles it is guaranteed (Think Hyundai's ten years ago). Forget about guarantees for a moment and focus on what is important, your purchasing power.

Finally, realize that there is no investment on earth that can guarantee your purchasing power under all circumstances and no product can ever be developed to guarantee purchasing power. Inflation-protected bonds do a decent job if you can accept an extremely lower rate of return, but overall there is nothing that can guarantee your income will grow with inflation. We expect that many assets will hold their purchasing power and those should be incldued in your portfolios, but always remember that even though a guarantee sounds great and makes you feel Warm and Fuzzy, there is really no such thing as a guarantee.


Friday, June 10, 2005

MSN Money - Why there is no housing bubble - Jubak's Journal

MSN Money - Why there is no housing bubble - Jubak's Journal

I guess somebody had to make the arguement.....

This is a bit of a wierd article because he says there is no bubble and then describes how the bubble would "pop". Again, I don't believe there is a national housing bubble, but there are certainly areas that at any interest rate are priced ridicously. A townhome not two miles from my office that is only 1300 sq ft is on the market now for $500,000 - does this sound like a reasonable price?

Scott Breaking News: Citigroup to Settle Enron Suit for $2 Billion Breaking News: Citigroup to Settle Enron Suit for $2 Billion

This is the second settlement for Citigroup/Smith Barney, the other with Worldcom. What this article leaves out is that Citigroup has $6.7 billion in litigation reserves which will fully cover the settlement.

Is it me or is it wierd that a company has nearly $7 billion in litigation reserves? Did Citigroup make that much money in the 90's that it can so easily pay such huge settlements? I am not against profit, don't get me wrong, but Citigroup had a hand in some of the biggest scams of the century (Worldcom and Enron) and they are just going on like business as usual. Did they really learn a lesson? Did they even lose money after all the fines and settlements were paid? I am not a corporation basher, but I worked for the large wall street firms for several years and the one thing that came out of that work was that they do not have your best interest at heart.

How long will it be until Citigroup has a hand in another multi-billion dollar fiasco? I guess I don't really have a point here, just pointing out some recent developments and putting out a warning.


Wednesday, June 08, 2005 - PIMCO's Bill Gross Is Worried - PIMCO's Bill Gross Is Worried

This is an interesting article where a major bond guru predicts long term rates to remain low and to get even lower......what?

Who knows he might be right, he might not be. I don't buy into some of his fears about the American economy, I believe the economy will be good long term and that stocks will outperform bonds. But in the short term anything can happen - even 3% 10 year treasury yields.......


NPR : Getting Americans to Save More

NPR : Getting Americans to Save More

An interesting audio from NPR and the Wall Street Journal yesterday. You will need an audio player to listen.


Monday, June 06, 2005

County pension fund's rate to stay same - The San Diego Farce > News > Metro -- County pension fund's rate to stay same

The San Diego County Pension fund continues to refuse to come to reality. When the board was faced with lowering expectations for investment returns to 8% from 8.25% they refused. You may wonder why this is a big deal?

The San Diego County Pension board and boards across the United States are using investment return assumptions that are unrealistic so that they don't have to use current funds to make stable their pension funds that have overpromised and will underdeliver. This almost guarantees that at some point in the future San Diego will find itself in the same position as West Virginia - being forced to issue bonds to fund liabilities that cannot be met with current state revenues (they just issues $5.5 billion and now have one of the highest debt ratios in the country).

A typical pension plan has an allocation that is 60% stocks and 40% bonds, assuming this allocation will earn 8.25% going forward is absolutely ridiculous.

The Wall Street Journal asked several economists earlier this year what they thought future returns on the stock market would be after inflation - the most optimistic was 6.5%, if we assume only 3% inflation we would get about 9.5% for a total return on a portfolio fully invested in stocks. Since only 60% is invested in stocks we can assume that the portfolio will earn about 7.7% before fees and inflation - this is being optimistic. A reasonable assumption would be 7.5%, yet the board wouldn't even consider lowering it to 8%. Clearly this board is not considering the long term best interest of the participants in the plan or the taxpayers of San Diego who will eventually be the ones making up the shortfall. This plan will continue to get worse and waiting a decade or two to fix it will hurt much worse than fixing it now.

There may be some pain to fix this pension now, but it is nothing compared to the pain that will be felt a decade from now. The board appears to looking at their own tenure and career in politics, not looking at the tough problems and finding solutions.

San Diego is not alone - this is a widespread problem and issuing bonds to fix the problem is not an acceptable solution.


Wednesday, May 25, 2005 Common Sense: House Poor Common Sense: House Poor

A good article by James Stewart of SmartMoney magazine on Real Estate. He doesn't think we are in a bubble, but he also says that he wouldn't be buying right now.


The American College and NAIFA Create New Financial Services Specialist Designation � Guidance you trust, tools you can use.

Is this a Joke?

This designation is worthless and yet another example of the lengths organizations will go in order to "appear" credable. No doubt in my mind that people who have been employees for less than a month will be putting "FSS" on their business cards and acting as if it really means something.

The FSS stands for Financial Services Specialist - it should stand for Full of Sh*t Specialist - pardon my french.

It just keeps getting more and more ridiculous.


Tuesday, May 24, 2005

The Globe and Mail: Mania over real estate spurs fears of a crash

The Globe and Mail: Mania over real estate spurs fears of a crash

An interesting story about what some believe to be a Real Estate bubble in the US.

My thoughts on this subject are not new. I believe there are several local housing bubbles, but not a national bubble (mirroring Alan Greenspans view - or perhaps he is mirroring mine!). The problem is that we don't know if there is a bubble until after it has popped. Just like with the Nasdaq in 2000 everybody thought prices could continue to rise even though they were completly disconnected from reality.

Don't get me wrong, I am not saying there will be a drop in real estate prices in the bubble areas (Orange County, San Diego, & other places mentioned in the article), I have no idea what will happen with prices. I thought homes were overpriced last year and they increased by 20%, thus confirming that I have no predictive ability (as if you needed confirmation).

Everyday I get a call from someone wanting to start investing in real estate and I tell them that I think its a great idea. Of course I preface this by explaining the difference between investing and speculating. If you are purchasing a home solely because you believe the price will be higher in a few months (the greater fool theory of real estate) and you can sell it to someone else for a profit, you are not investing - you are speculating. There is nothing inherently wrong with speculation; our society could not succeed without speculation, however do not call it investing. An investment is something that you can reasonably expect to get a return on over a reasonable time frame. To me there are two basic ways to make money in real estate:

1) Buy a property at a reasonable price, preferably a depressed price and fix it up (adding value to it) - then either sell it or rent it out.

2.) Buy a piece of property for rental purposes, but in doing so make sure that you have cash flow that is at least break even. Not break even on an interest only loan, but break-even on a fully amortized loan (including taxes, insurance, etc).

I believe rental real estate can be a wonderful way to build a net worth, but only if done wisely. I always say that there is no other investment like real estate. What other investment is purchased for you (the bank) and paid off by someone else (the renter)? There is no other investment like this.

Imagine a 35 year old purchasing a few pieces of property and getting enough rent to cover expenses - if they have a 30 year mortgage it will be paid off by retirement and they will have an income stream that they won't outlive and one that will rise with inflation (rising rents), this is smart investing.

The problem today is that this type of real estate investing is getting more difficult as more and more people are doing it and bidding prices up to levels that don't make sense. In addition, many of these people have no reserves (which is a must in real estate) and no idea how to fix a toilet (another must if you want to be a landlord). Real Estate can lead to riches, but like anything it must be done over time and you must be patient and smart with your purchases. Buying real estate because it is going up is not a good reason to buy.

I can help you evaluate a potential deal if you are in the market, but be aware that I am quite conservative - i will apply the Graham and Dodd principles when evaluating a deal, it has to make sense and provide a reasonable level of safety.

Are we in a bubble? I don't know. Does it matter? Not really, if you are living in your home for the long term you have nothing to worry about, but be careful with your ideas of buying property.

Scott Dauenhauer, CFP

Saturday, May 21, 2005

Lunch With A Convicted Felon & Former International Fugitive....Enlightening!

Last week I had lunch with a convicted felon and former fugitive. The funny thing is that I didn't even know it at the time. It's not like they have to wear a sign or anything. So why am I telling you this?

The lunch was actually at a Financial Planning Association quarterly educational meeting - yes, I know some of you are already thinking it makes sense....lunch with a bunch of Orange County brokers and advisors - chances are pretty high one of them has got to be a felon! Of course I am joking, most of my colleagues are fine advisors and of the highest ethic, excluding the wirehouse brokers.....

Ironically the individual I had lunch with was not shy about his past. Though he didn't tell me his story at lunch, he did tell he was to be the speaker for the afternoon session, the ethics session. Yes, a convicted felon and former fugitive from the law was to be the speaker to the FPA and his topic - ETHICS. Again, some of you are thinking to yourselves "how appropriate!" In all seriousness, I knew the speaker had a bad past, I was told he was a "fallen" CFP and that his story was being communicated to us so that we wouldn't fall into the same trap.

Lunch with Patrick was good, he seemed like a great guy, then I heard his story.

Here's a guy who crossed the line while a broker for the Oklahoma treasury and in the most basic sense stole millions of dollars (with help from others). He justified the stealing in his mind, even drawing up elaborate flip charts to convince his loved ones that what he was doing was legal. Of course, what he was doing was not legal and it caught up to him. One day he recieved a call from Ted Koppel (actually a message on his machine), he and his buddies were being investigated. After fealing the heat and refusing to face up to his moral and ethical failures Patrick packed up his family and ran from the FBI - to Costa Rica. To make a long story short Patrick was on the run for three years, in the process destroying his family and squandering all the money he stole - and then, he turned himself over to the authorities in Costa Rica. He finally faced up to the facts that it was his own moral and ethical failures that led him down this road, it was nobody elses fault, only his.

Not all is perfect for Patrick now, his wifed divorced him (imagine that!) and he owes the government nearly $4 million that cannot be dismissed in a bankruptcy. But not all is bad for this one time International Fugitive. He discovered a knack for public speaking and now tells his story all over the country. He told me he has over 160 events this year. You probably didn't get the whole gist of his talk with us from this brief interlude, but the moral of his story was simple - crossing that ethical threshold isn't easy to do, but once you do it, it gets easier and easier. I encourage you to listen to Patrick's story in person one day if you get the chance, it is quite amazing, and entertaining. He truly is a man transformed, in fact he is the ethics chair at several prominent universities. The last irony is that after his talk to the FPA he recieved a standing ovation. Why is that ironic? Well, I've never seen a standing ovation for any speaker at an FPA event, the first time was for an convicted felon and former international fugitive....perhaps I am just jealous, after all I have spoken for the FPA and I didn't get a standing O! Come to think of it, I am not jealous at all, if it takes what Patrick went through to get a standing ovation I'd rather just learn from his mistakes, and go without one.

If you are looking for an incredible speaker, with an amazing story of life change, check out Patrick's website at speaking of ethics.

I like to think I was ethical before Patrick (don't worry I was), but I hope that I am even better afterward. Only in America could lunch with a convicted felon be so honorable.


Thursday, May 19, 2005

It Takes Planning to Choose the Right Financial Planner

It Takes Planning to Choose the Right Financial Planner

An article appearing in the Washington Post today gives credence to a wonderful new tool people can use to identify a financial planner that is qualified and willing to work in your best interest. is a great new service that rates advisors and provides a match to individuals looking for a qualified advisor. The creator of Paladin, Jack Waymire also wrote a book on how to find a financial advisor who is credable.

I am proud to say that I am one of the advisors listed on the Paladin Registry and I have a rating of five out of five stars.


Monday, May 16, 2005

Who's Preying on Your Grandparents? - New York Times

Who's Preying on Your Grandparents? - New York Times

A great article on the annuity industry and how they are taking advantage of our senior citizens. I have severl clients who have been sold junk products from companies like American Equity Investment by slick salespeople who have no regard for doing what is right. The only interest is in generating a commision.

I don't believe annuities are all bad, but the vast majority are and you should be very weary before purchasing one. A client of mine was sold the exact same annuity mentioned in this article and is now stuck for 17 years in it - of course I won't stand for that, I'll get her out even if it means suing the company.


Wednesday, May 11, 2005

The End Of Pensions -

The End Of Pensions -

Is Forbes right? Only time will tell.


Union Pension Takeover Taxes Gov't Agency -

Union Pension Takeover Taxes Gov't Agency -

Article on the PBGC


United Air Wins Right to Default on Its Employee Pension Plans - New York Times

United Air Wins Right to Default on Its Employee Pension Plans - New York Times

Are the dominoes beginning to fall on Corporate Defined Benefit Plans? It sure seems that way as United Airlines successfully defaulted on its pension plan in bankruptcy court yesterday. Many of you are probably thinking to yourself "so what, this has no effect on me." You would be wrong in that thinking. Contrary to what you may have heard the retirees of United will not lose their pension, but many of the retirees will recieve a much lower payout. The reason for this is that pensions in America are backed by a governement entity called the PBGC or Pension Benefit Guaranty Corporation. The PBGC takes over "underfunded" or defaulted pensions and continues to make the payments so that retirees still have an income. So whats the problem?

The PBGC is itself heavily underfunded by over $23 billion dollars and this is before taking into account the fact that pension programs in the US are underfunded by over $450 billion, some of which will filter down to become PBGC funding problems. The PBGC is backed by none other than you, the taxpayer. The PBGC will need a bailout at some point similar to what happen to the Savings and Loans - you, the taxpayer will foot the bill.

On the bright side it is likely that legislation will be passed in order to allow companies to spread out their pension liabilities over more years, which should help corporations keep their pension plans and not simply dump them off on the PBGC. Of course extending liabilities without new strucutural solutions would simply be another piece of bad legislation. In addition, any bailout of the PBGC will not likely affect our budget deficits too much, after all what's another $50 - 100 billion when you owe as much as we do (do you detect a hit of sarcasm).

The brightest spot however is that we have a strong economy and strong prospects for the future (despite what you hear on television every day). A growing economy leads to a growing stock market which leads to a reduction in underfunded pensions (ironically though it was the growing stock market that led to the underfunded pension problems.....long story, don't ask).

I am optimistic about the future of the United States economy. I fully expect that we will have bumps along the way, but am confident the bumps are only temporary. Sure, there are a lot of things that could "derail" the economy, high oil prices, high budget deficits, high trade deficits, but the fact of the matter is that there is always something that could "derail" the economy. Take a look at our history and you can find dozens of things that would make you pessismitic about America, but the pessimists are always proven wrong in the long term. Don't get me wrong we do have strucutural problems that need to be fixed soon - Social Security and Medicare/Medicaid being the most urgent. I don't care what party you hail from there is no doubt that if we don't act soon our long term prospects will be much dimmer.

Ironically as the defined benefit pension plans begin to fall in the corporate sector there are signs that they are beginning to fall in the public sector as well. The Governator in California has proposed getting rid of the pension plans and replacing them with 401(k) type plans (called defined contribution plans). The thought being that the risk should be on the employee not on the taxpayer. Of course, the trend toward 401(k)'s in the public sector is not exactly a slam dunk, West Virginia just nixed the 401(k) plan it has had for their teachers since 1991 and are replacing it with.......a defined benefit pension. My personal opinion is that defined benefit pension plans will rule in the public sector for quite awhile, but their time is coming; I give them another ten years before the pensions begin to give way to 401(k) type plans.

On a completely separate note, my vote for American Idol this year Keri Underwood. Yes, she is a beautiful blond, but she has the vocals and I love country music.....

I would love to hear your feedback....

Till next time....


Monday, March 28, 2005

Start Life In Debt and Why It Makes Sense..SS Part II

The best thing we can do for our children right now is to put them in debt from the day they are born.

About two years ago I came up with a method for saving social security & medicare long term; actually abolishing both while still providing economic security and providing for a higher standard of living than current retirees have. I mentioned the idea to a few people, my wife included and they thought it was a great idea. The problem though was that the idea was too great, not to mention extremely costly in the short term. I shrugged the idea off as yet another great idea that would never be implemented by government.

Two years later and the nation is starting to focus again on the problems of social security and a lot of proposals are being floated around Washington. One of the proposals caught my attention because it sounded very similar to my own.

Paul O’Neil, the former Treasury Secretary for President Bush (and former CEO of Alcoa) was being interviewed by a newscaster and low and behold, Mr. O’Neil was talking about a plan very similar to what I had come up with a few years back. A story by the Washington Bureau captured the genesis of his idea:

“To move away from Social Security's chronic funding problems, O'Neill suggests that the government put $2,000 in a special investment account for every newborn American. The government would invest $2,000 more each year until the child reaches 18.
The money would be invested in a conservative index of stocks and bonds and couldn't be touched until retirement. The investment would grow at a compounded rate, meaning that as the value of assets in the account grows, profit would be reinvested so the account would grow even more. Without adding a single cent beyond compounding after the child turns 18, he or she would retire at age 65 with $1,013,326 in the account, O'Neill reckons.

"If you do the arithmetic, the $1 million would provide an annuity of $82,000 a year for 20 years," O'Neill said in an interview.”

My idea was slightly different. I would have the government loan each child born a much higher amount, giving them a lump-sum instead of payments for 18 years. This gives the money more time to compound and grow. The stock market tends to go up more than it goes down, thus a lump-sum of a similar amount, say $36,000 would grow to about $5,000,000 by the time the child retired at 65.

This would provide an inflation adjusted income of about $31,000 in today’s dollars, with the ability to leave money to heirs. The other thing that is different about my plan is that the government is not “giving” the child anything except a government subsidized loan. The child would be required to pay it back once they begin working. Instead of paying into social security, which would amount to 12.4% of their potential income, they would be paying off the loan instead. Even a person at minimum wage could end up paying off the loan during their life very easily and not pay nearly the rate of 12.4%, plus they would have the benefit of an account with a huge growing balance. Imagine having the opportunity to retire with more money than you made during your working years. This plan would benefit low-income workers without subjecting them to welfare.

Are there some flaws with my plan? Sure. It would require a ton of borrowing, the details would be a little more complex, and we would need to figure out a way to take care of the disabled, widowed, and survivors. But these are problems that would be easily overcome. The best thing we can do for our children right now is to put them in debt from the day they are born. The public in America has a love affair with debt, as does the federal government, isn’t it about time that we started using debt in a much more powerful way? Of course an idea like this would never work on capitol hill; it’s too good of an idea and the government usually rejects those. I applaud Paul O’Neil and his idea and hope the congress will see that meaningful reform in the long term will lessen welfare, increase economic security, and grow the economy while empowering people.

Until Next Time......


Friday, March 25, 2005

The Rise of Interest Rates

For nearly two years I have predicted interest rates will rise. Of course I was not alone in my prediction, pretty much everybody thought the same. We were all wrong for nearly two years, which just goes to prove you can be right about something, just not right about when it will happen. For example, I could predict that American will have another terrorist attack, but if I can't tell you when, am I really making a prediction?

Short term interest rates have actually been rising for the past year, at the end of March last year the 90 day treasury bill was yielding .96%, which meant money market accounts were yielding about half that, some of them yielding nothing. However, as of yesterday the 90 day treasury bill was yielding 2.70% and you can get a money market account paying 3.25% at In other words, short term rates have nearly tripled in the last year. This marks one of the fastest rises of short term interest rates in history.

Long term interest rates on the other hand stayed pretty much the same throughout the year. The ten-year for a short period jumped up to the 4.80% range, but then quickly fell back down to the 4% level and didn't budge.......that is until February. Since February the ten-year treasury has risen to 4.63% (as of 3/22/05), not a huge rise, but one worth noting as it will add nearly 3/4 pt to a mortgage loan.

The real question is whether or not the trend will continue. It appears that if Greenspan has his way it will. What most people don't know is that Greenspan mostly has control over short term rates, long term rates are determined more by the market than what Greenspan wants. Thus there is the possibility that short term rates could continue to rise, while long term rates stay in the mid 4 - 5% range. This would actually hold the best of both worlds scenarios, good returns on short term bonds, and good rates on mortgages. My first mortgage was 7.75% and I thought I was getting an incredible deal, of course my loan was only $163,000. If rates rise I think new home buyers will still be able to squeeze into a home, but they will start having a harder and harder time.

What does this mean for your portfolio? Well, your bonds and bond funds will take short term hits to their principal, but will start earning higher interest rates as interest and maturing bonds are reinvested into new bonds paying higher rates - in the long run rising rates are good for bonds and bond funds especially (despite what most illiterate financial advisors will tell you).

There it is, my treatise on interest rates for the end of the 1st quarter, nothing fancy, but things are starting to look up......rates that is!

Till next time,