The Only Radio Money Show You Should Listen Too

Lately I've been experiementing with Podcasting. Podcasting is basically the ability of anyone to create their own internet radio program. I'll be posting podcasts to my new website once I'm finished with it and I'll be commenting on news events and doing educational content, just like I do here on my blog.

In my research on how to do a good podcast (online or downloadable radio show) I found a radio show called "Sound Investing". "Sound Investing" is a weekly radio show/podcast that anyone can download to their computer, ipod, or mp3 and listen to at their leisure. I've listened to a lot of radio shows, everthing from Maverick Investing (give me a break) to Suze Orman ("you go, girlfriend"), yet none of them are really that good. They just don't educate you on what you really need to know about investing, or investing correctly.

"Sound Investing" is hosted by Merriman Capital, a group of Investment Advisors out of Seattle, Washington that I admire and respect. They manage money similar to the way I manage money and thus we have a common bond.

Though I believe my podcasts will be great and you should listen to them as often as you can once I make them available, I also think you should listen to "Sound Investing" as a supplement to what I'll be doing. I don't want to re-invent the wheel and I don't have the resources or the time that Merriman does to produce such an excellence podcast, thus I am recommending to you that you listen to it.

I know what your thinking...Scott, why would I listen to a competitor of yours? Why would you refer to a competitor's show as "The Only Radio Money Show You Should Listen Too"?

The answer is simple, my passion is for people to become educated about investing and financial planning and I can't do it all on my own. When I find honest, respectable, intelligent people who do a great job, I want you to hear what they say, it can only enhance your life and thus my own.

I am not saying that you should move your accounts to Merriman......I'd still like to be your advisor and will work my tail end off to be the best, but do listen to "Sound Investing" every chance you get, you'll not regret it.

Scott Dauenhauer, CFP, MSFP

P.S. Merriman Capital doesn't pay me a dime to promote their webcasts!

Interest Rates Are.......Dropping?

Uh......anybody out there got a prediction on interest rates?

I once read a study (wish I could find it to cite it) that showed how often economists get interest rate predictions correct. Remember, there are only three ways interest rates can move: Up, Down, or Sideways (no movement). Thus any idiot off the street when polled would have a 33% chance (1 out of 3) of getting interest rate movements correct. The study showed that economists on average are correct in predicting interest rate movements 31% of the time.....in other words they have the best job in the world - they get paid a lot of money to be wrong consistently. If the highly paid, highly knowledgeable, and highly connected economists can't get interest rate predictions correct, what makes you think you or I can? I've given up on predicting rates, even though I've been correct on predicting where rates would go, I've been consistently WRONG in predicting WHEN they will go where.....

Thus, this brings me to today's interesting insights on interest rates.

Interest rates are falling.

Yep, you heard me. After rising consistently for the past 18 months (at least on the short side) they have been falling for the past two months. Need proof? The 6 month Treasury bill was yielding 5.33% on July 18th, while the 10 year Treasury Bond was yielding 5.25% - both 12 month highs, yet today (August 30th, 2006) they are both down. The 6 month treasury now stands at 5.14%, or nearly .20% lower, not an incredible drop, but lower. The 10 year bond however has dropped to 4.76%, almost a full 1/2% point (.49%). Bonds have rallied over the past two months (this means the prices have gone up, thus the yields have gone down).

Even wierder is that the yield curve is still inverted, meaning short term rates are higher than long term rates. In fact, a money market account is yielding more than short and intermediate term bonds. Historically this has meant a recession is on the way, however I've ceased giving any credence to these "historical" markers.

My point here is that we cannot predict the future of interest rates, the stock market, recession, or War for that matter. All we can do is build a globally diversified portfolio utilizing several asset classes and varying maturities of fixed income. Contrary to popular belief, your returns will not come from making correct predictions, but from having the correct portfolio and behaving in the right manner.

Scott Dauenhauer, CFP, MSFP

The Time May Be Right For The "Fiduciary Only" Advisor

"The investment advisory business just doesn't inspire confidence," Jonathan Clements
wrote recently in The Wall Street Journal.

The well-regarded columnist went on to say that the industry does have some great
investment advisers, but the problem is that the public has difficulty differentiating the
great from the rest.

In the late 1970s and early 1980s, a number of investment advisers and financial planners
began to make the transition from commission-based to "fee only" compensation. So
important was the basis of fee-only compensation to their practice that a group of
financial planners in 1983 established the National Association of Personal Financial
Advisors in Arlington Heights, Ill., to further the movement.

The time may be ripe for a parallel movement to evolve - the "fiduciary only" adviser -
the investment adviser who works with clients only on a fiduciary basis. Every client of
the adviser is provided the same standard of care - a fiduciary standard - whether the
client is a retail investor or a 401(k) plan sponsor."

I encourage you to follow the link and finish reading this piece by Donald Trone. I've been practicing as a Fiduciary Only advisor since I started Meridian Wealth Management in 2001.

Do you know what a Fiduciary is? Is your advisor a Fiduciary? Will he or she put in writing signed by their principal (manager) that they are a Fiduciary? If not, its time you made a change.

Scott Dauenhauer, CFP, MSFP

Police & Firefighters Gain New Benefit

The recently passed Pension Protection Act of 2006 was quite sweeping, but one provision has not gotten a lot of attention despite the fact that it has given Police, Firefighters, and other Eligible Safety Officers a great planning benefit.

Retired Eligible Public Safety Officers can not direct their 403(b) or 457 provider to pay tax-free distributions to their health or long term care insurance policy up to $3,000 annually starting next year. This is a great benefit and one that I hope spreads to all governmental employers.

While many Eligible Public Safety Workers have retiree health care provided for life, there are a lot who don't or experience higher costs than anticipated. Many would like to purchase long term care insurance but don't have the cash flow, this new provision just might push them to get that policy.

It appears that EPSW's can now save for health and long term care insurance premiums via their governmental DC retirement plans, congrats!

A word of caution, don't be so quick to rollover your 457 balances to an IRA, even though your broker will urge you to. If you do so you lose the rights just granted. Having said that.....if you do want to rollover money (in order to expand your investment options) check with your 457 plan provider and see if you can do a partial rollover and check to see if they will accept rollovers BACK into the plan from retirees, this way you can leave some money on deposit and roll the rest out to invest as you see fit.

Scott Dauenhauer, CFP, MSFP

Actually, what we need is a 401(Rx)

Star-Telegram 08/20/2006 Actually, what we need is a 401(Rx)

Mr. Jacobs is right on the money with this prescription. Americans need a tax advantaged vehicle to save for retiree medical expenses. Medical expenses are growing fast and are quickly crowding out spending on things that retirees WANT to do in retirement, such as golf, travel......EAT.

My idea is a little different than Mr. Jacobs. I wouldn't create a whole other set of plans - do we really need more confusing contribution plans? What needs to be done is allow for greater contribution limits and allow a certain amount of money that is in these 401(k), IRA, 403(b), 457(b), etc to be withdrawn TAX FREE for certain medical expenses, including long term care insurance. This wouldn't solve our health care problems, but it would give additional incentives for people to save for retirement needs - which will include medical expenses.

Scott Dauenhauer, CFP, MSFP

Omissions in new pension law hobble consumers

Omissions in new pension law hobble consumers - MarketWatch

MotherRock Hedge Fund to Close After `Terrible Performance'

Bloomberg.com: Exclusive

Yet another Hedge fund blowup - this one run by a former President of the NYMEX (New York Mercantile Exchange). Another bites the dust. Hedge funds are as waste of your time and your money, don't be lured into these seemingly "sexy" investments. There are simple principles that should guide long term investors, if implemented and followed your performance will be just fine.

Scott

Equity indexed annuities can come back to bite you if cash needed

SignOnSanDiego.com > News > Business > Lynn O'Shaughnessy -- Equity indexed annuities can come back to bite you if cash needed

Quoted in the San Diego Union Tribune again on Equity Indexed Annuities.

Scott Dauenhauer, CFP, MSFP

WSJ.com - Yikes, Here Come The Retirement Raiders

WSJ.com - Yikes, Here Come The Retirement Raiders

I was quoted in this Wall Street Journal article.

Scott Dauenhauer, CFP, MSFP

Thick as a BRIC

Thick as a BRIC

William Bernstein is exactly right on with this article.

You will be hearing the term BRIC more and more often - it stands for Brazil, Russia, India, and China (B-R-I-C).

These funds will invest only in these countries, what a stupid concept, ignore it.

Bernstein goes more in depth than you probably want to know, but the bottomline is these funds don't fit into a diversified portfolio.

Scott Dauenhauer, CFP, MSFP

Start your own hedge fund

Start your own hedge fund - August 7, 2006

For all of you feeling left out of the Hedge fund craze, read this article. It basically summarizes how stupid Hedge funds are. Anybody can start one, there is little regulation, and you can even invent a track record.

The hedge funds that are good (very few) are not going to let you in and the ones that are willing to let you in (many) aren't any good.

The conflicts of interests abound - especially in fund of fund hedge funds where the sponsor looks for hedge funds that will share revenue, not neccessarily perform.

This is a great article, if it wasn't so sad it would be funny.

Scott Dauenhauer, CFP, MSFP

Incubator Rip Offs

I love www.fundalarm.com. The witty posts and the great education and tracking of the mutual fund industry make it a must read for all investors. In this months edition they track a favorite mutual fund scam, the incubator fund, here is what Roy Wietz has to say:

"A recent press release announcing the introduction of Delaware Small Cap Core might have caused your brow to furrow: Why is the press release announcing that Small Cap Core "is now available to investors" [italics added], when the press release also indicates that the fund's "inception date" was way back in December, 1998?.....A close reading of the press release -- a really close reading -- reveals that Delaware Small Cap Core is an "incubator fund," one of the industry's most cynical, most deceptive, entirely legal, and still largely unregulated practices.

....For the first six-and-a-half years of its existence, Small Cap Core was in "limited distribution" (typically, this means that only Delaware employees and their families would have been allowed to invest in the fund).....Because Small Cap Core performed reasonably well during its "limited distribution" (i.e., incubation), Delaware allowed the fund to survive, and the fund is now smiling for the public with a fresh new face and a well-worn track record.....

If the fund hadn't performed well during its incubation period, it would have been liquidated, and virtually no one outside of Delaware would have been aware of its failure.....This kind of cherry-picking is bad enough, but Delaware Small Cap Core compounds the cynicism and deception: During most of the incubation period, the fund had a different name, different managers, a different style of investing, a more concentrated portfolio, a small and stable asset base, a lower expense ratio, and it didn't extract a 12b-1 fee.....

In other words, the current fund is essentially new, yet it's being marketed with a track record that was carefully cultivated under totally artificial conditions.....When a fund comes to market with this kind of history, we offer just two words of advice: "Avoid it".....And when a fund company engages in tactics like this, remember, that company is giving you a clear demonstration of its values, and what it thinks of its customers. "

Would you have picked this up? I doubt it (of course most advisors would have missed it also). Still, this is one good reason to have a well qualified, fiduciary advisor working for you.

Scott Dauenhauer, CFP, MSFP

Mutual Fund Investors Flee Equities

Investor's Business Daily: Mutual Fund Investors Flee Equities

My favorite part of this article is as follows:

"If there's any solace in the weak showing for June, it is that mutual fund investors, as a group, are as wrongheaded as most investors. They tend to be selling at market bottoms and buying excessively at market tops.

June's net outflow was the first since February 2003 when investors took a net $10.88 billion out of stock funds. It should be noted that a substantial rally began in March.
Even that number pales in comparison with the net outflow of a record $52.61 billion in July 2002, near the tail end of a three-year bear market.

The most money ever put into stock funds in a month was $53.68 billion in February 2000, just as the stock market was hitting a bull-market high and just before the S&P 500 began a 50% plunge and the Nasdaq was about to see 75% lopped off its value."

My point is that following trends, especially mutual fund inflows and outflows is probably only valuable if you do the opposite of what you believe the flows are telling you. Most people sell when they should be buying and buy when they should be selling. Don't follow the crowd, they are historically wrong.

Scott Dauenhauer, CFP, MSFP