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
Thursday, August 31, 2006
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
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
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
Tuesday, August 22, 2006
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
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
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