Friday, October 30, 2009

Boo! Frightening college costs

Here's something scary: The 10 most expensive colleges in the United States are all above $50,000 per year. For a four year education, you're looking at probably close to $250,000 by the time you've paid books and fees at these universities.

As we've said time and again here, there is no good reason to spend that amount on an education. There are lots (and lots!) of good, solid state colleges and universities. It's what you do with your education that matters. If you are wealthy and you can afford to send a child to one of these universities, hey, have at it. But do not mortgage your home or do anything scary to pay for college for your kids.

Have a look at the list here:

And here's something REALLY scary. If you have a baby this year, and you want to send that child to one of the universities highlighted that's $50,000 a year now, you'll pay $518,641 for their education by the time they're ready for college. If college costs rise at 5 percent a year, your annual cost will be $120,331 (up from $50,000 over 18 years). The total cost for 4 year(s) will then be $518,641.

Here's the calculator we used to get those figures. Use it to look at the cost of your education or your child's education.

Wednesday, October 28, 2009

New homebuyer credit: could it be renewed?

The tax credit for first-time homebuyers hasn't quite done what government officials had hoped. It's not quite boosted the real estate market as much as they'd like. So there's talk now of extending it and even perhaps making it larger.

Curious as to where things stand? Read on for more information:

From CNN:

Tuesday, October 27, 2009

Don McNay: Just Say "No" to Adult Children Wanting Money

Don McNay writes a regular column for The Huffington Post. His latest shares a key message: don't give large sums of money to adult children. It keeps them from growing up and really doesn't do them, or you, any favors.

Here's his insightful column on the topic.

Don McNay: Just Say "No" to Adult Children Wanting Money

Posted using ShareThis

Monday, October 26, 2009

Roth IRAs may be an option

On Mondays, we answer a question from a reader in this space. If you have a question, please post it in the comments section or e-mail it to

QUESTION: I’d like to make a ROTH IRA contribution for me and for my husband - $5,000 each in 2009. However, my husband’s income is about $60,000 and mine will probably be at least $100,000. I’m self-employed. I understand from what I’ve read about Roth IRAs that if your Modified Adjusted Gross Income is $166,000 you can’t make the contribution. If our income comes in at or right above $166,000, does that mean that we won’t qualify? What’s modified adjusted gross income anyway?

ANSWER FROM DAN DANFORD: This may sound like a simple question, but really, it's not. The Modified Adjusted Gross Income is a complex number that depends on many factors, and I don't know enough about your personal situation to tell if you'll be disqualified or not, especially since your income is near the borderline. Here's a link to solid information to read more about it:

Despite the income limitations, Roth IRAs are worth taking the time to do the calculations to ensure that you qualify. Roth IRA accounts differ from traditional IRAs because there's no tax deduction for the annual contributions. In other words, it's money that has already been taxed. The desirable Roth benefit is that you won't pay taxes on the annual portfolio growth or withdrawals in retirement. There are a number of constraints - including family income and early withdrawal privileges - which alter the ability and attractiveness for using Roths.

I'm not going to address the exact Roth tax rules here. You'll need to talk that over with your tax advisor who knows your exact situation including income and adjustments. But some general guidelines might be helpful. First, the younger you are, the more attractive a Roth. Income and tax rates aren't high, so the tax you pay isn't prohibitive. A traditional IRA deduction isn't as meaningful for you. Second, the period for tax-deferred compounding is longer, so that's appealing, too. Third, the older you are, the more likely you are to have existing traditional IRA accounts. Why complicate life with another tier of monthly paperwork?

I'm a fan of Roth IRA accounts in the right circumstances, and your family could be a perfect fit. You've got high income and 401(k) or traditional IRA tax deductions could be more appealing. Also, I'd usually suggest a compounding table to view the actual difference between Roth compounding and traditional compounding, given your age and years until retirement. It's true that you'll pay taxes on withdrawals with the traditional, but most of our clients defer those withdrawals for a very long time anyway. Not sure how much difference the Roth makes for many people.

Overall, I'd suggest you discuss with your tax advisor and keep one eye towards convenience and simplicity. I see too many people with a dozen scattered accounts which include Roth, traditional, old 401(k)s, and an occasional orphaned Tax Sheltered Annuity. Stick to a good long-term plan, and weigh both current and future tax breaks.

Your best plan for 2009 may be to wait until as late as you can in 2009 when you'll know, as a self-employed person, what your gross income will be. Ask your tax advisor to help you figure out your MAGI and see if you'll qualify. Hold on to the Roth IRA money until then, and make the contribution in December if you qualify. If you aren't working with an advisor, you need to be. With your income, you can make some significant progress towards long-term goals if you have professional help. This is an opportunity you don't want to squander.

Thursday, October 22, 2009

Collaboration: Vicious group-think with a point

By Dan Danford, MBA, CRSP

The great manipulation technique of this decade is “collaboration.” This horrendously popular business term has been deployed in all areas of American life.

We hear it constantly at work, and now it is now worming its way across the nation like some dreaded crop blight or tree disease. A recent Google search yielded some 83,000,000 hits in under a quarter-second. That’s five times more than “synergy” and four more than “paradigm.” We’re talking the World Series of inane business terminology, here.

According to Webster, to collaborate means 1) to work jointly with others or together especially in an intellectual endeavor, 2) to cooperate with or willingly assist an enemy of one's country and especially an occupying force, or 3) to cooperate with an agency or instrumentality with which one is not immediately connected.

Of those three, happy “collaborators” likely prefer the first, which sounds noble, but the bell which rings true today is the second; that is, to cooperate with or willingly assist an enemy (emphasis mine). That’s because collaboration is usually suggested by the strong as an effort to manipulate the weak.

Think about it. Do cries for collaboration ever rise up from the peasant classes? Not so much. They nearly always reign down from above. “Go, therefore, and collaborate on the issue of diminishing widget sales in the direct distribution channels of our Northsouthern region,” declares Mr. Puffy, the CEO. “Help them see why I think we should close that plant.”

In the community, it’s “let’s gather a group of social agencies to collaborate about neighborhood floral disintegration. Perhaps we could jointly commission a study to determine possible solutions,” intones Pansy Marigold, owner of the International Floral Studies Group. Blah, blah, blah, blah.

I loathe manipulation. Manipulators think they are smarter and sneakier than all the rest of us. They devise grand schemes to feather their own nest, and then coerce others to pay. They are bullies with velvet gloves. Collaboration is their tool of choice. “Everyone gets a say,” they’ll explain, but results are known far in advance to anyone with a brain. Ask around the office; manipulators think they are smarter, but they’re not.

There’s a sign on my desk declaring “none of us is as dumb as all of us.” The simple fact is that collaboration is often a management technique designed to exploit group dumbness. Most times, the lead collaborator has an agenda and a desired result. Others in the process are unwitting co-conspirators. They show up, hoping they can add data, or resources, or wisdom (or, with any luck at all, humor). Wrong. They are, in fact, adding dubious credibility to both the agenda and result.

Collaboration as intellectual endeavor? Maybe it could happen. When two university scholars gather at Starbucks to discuss research. Or when Bobby Flay and Rachel Ray conspire to create some new dessert for the Food Network. On ESPN commentators engage lofty discussions over the merits of a Wildcat offense in the NFL. (Though a friend just emailed that last weekend he heard a broadcaster suggest that two bruising linebackers "collaborated" on a tackle. I kid you not.)

Intellectual? Not today. Collaboration is a transparent and weak management tool. The suits want us to think we have input, so they put us in a group and guide us to their goal. But we have a secret weapon. Any of us are smarter than that group of us. As a tool, collaboration is dull, clumsy, and ineffective. Manipulators beware: we’re on to your hollow game.

Wednesday, October 21, 2009

Defining a good job

Dan Danford regularly provides podcasts for Dad's, an excellent resource for men going through the divorce process. In this week's installment, Dan addresses what makes a job a good job.

You can watch it right here.

Tuesday, October 20, 2009

Elaine Coder earns well-deserved promotion

By Dan Danford

At the Family Investment Center, like a lot of small businesses, we keep an eye out for great employees. We're lucky to have Elaine Coder on our staff, and delighted to announce that she's moving up into a higher position here and will be serving clients even more in the future.

For a small business, there's nothing better than finding out your next great partner is already working for you - and that they're willing to do what it takes to get there. She knows us. She knows our clients. She knows how we do business. It's a wonderful find for us.

Elaine brings an excellent skill set to Family Investment Center. Her genuine concern for clients melds perfectly with relevant experience in finance and banking. She's been helping us serve clients for almost five years and she worked very hard to learn material and pass the required securities exam. I was more excited when she passed the exam than I was when I did. She's sincere, hardworking, and dedicated to each client's success. She's the perfect compliment to our other professionals, and we welcome her as a trusted colleague and professional.

Monday, October 19, 2009

Money market funds are good for big savings

On Mondays, we answer a question from a reader. If you have a question, please post it in the comments section.

QUESTION: I am saving up a large amount for an emergency savings fund. I'd like to put it somewhere that I can access it, but where I can't get to it easily to remove temptation to spend it. Is there anything that fits that definition?

ANSWER FROM DAN DANFORD: I like money market mutual funds. These are genuine mutual funds where the portfolio is invested in short-term government or corporate bonds. They use a special accounting system where the share price is held at $1.00. Dividends are credited daily, and paid monthly, so you'll draw solid market rates even on balances that last a few days.

Unlike bank deposits, daily rates are determined by bonds in the portfolio. So, if rates are rising, you'll see increased yields almost immediately. Bankers decide how much they'll pay (often determined by competition), and they are slow to raise rates. Occasionally, you'll see higher rates in local markets, but that often signals that a bank is looking for additional capital - a red flag. Bank deposits are covered by FDIC and money market funds are not. Still, shareholders of the fund own a pro-rated portion of the portfolio, so risks are minimal.

Most money market funds offer free checking services, but if you want to make it tougher to withdraw, decline them. Then, you'll have to telephone for withdrawals and they'll mail a check to your home. That will take a few days and should take impulse buying off the table. Good luck.

Friday, October 16, 2009

Save up now to pay for your kids’ college

By Robyn Davis Sekula

I frequently listen to Dave Ramsey. I like his straightforward advice, but I don’t always agree with him. One of the things I don’t see eye-to-eye with Dave on is paying for kids’ college education.

Dave once said on air that he was talking to someone who was a wealthy celebrity, who decided for his kids’ own good, he would not pay for their college – he’d make them work their way through. Dave applauded him. But I listened to that and shook my head in disbelief.

That’s just plain wrong. If you can pay for a child's education, WHY wouldn’t you? I understand the idea of working and earning money, but paying for college, on your own, is really daunting, and getting more so every year. There are kids who drop out every year because they simply can’t afford it, and it only gets harder as the years go past.

But let’s get one thing straight right now: if you can’t afford it, don’t do it. And don’t feel obligated to pay for a pricey private college education you can’t afford. If your child wants to attend a private school, and you don’t have the money to pay for it, they will have to take on debt or get scholarships. Perhaps offer to contribute what you would have paid for a public education and let them make up the difference. You shouldn’t sacrifice your own financial security to help out an adult child.

My parents paid for my college education. I wanted to attend a pricey private university two states away. We visited, and then my parents leveled with me and told me it would be very difficult for our family to afford, and asked me to consider in-state public universities. I chose James Madison University in my native Virginia, which, as it turns out, was a great fit for me and my parents (GO DUKES!). I am very grateful for their financial support – and years later, I realized that their ability to pay for my college education allowed me to start out my adult life without debt, which changed the very nature of where I could live and what I could do. I wanted to pursue journalism, and with any form of student loan whatsoever, I would not have been able to afford that career path. I met friends in journalism who worked collection jobs while they paid off their debt so they could then become a reporter. I’m so glad I never had to detour.

If you’re wealthy and willing to pay for any college they want to attend, great. Do it, and know that you’re giving your kids a wonderful gift.

If you cannot afford an expensive university without going into tremendous debt, then tell your children that. Be up-front about what you can afford, and what you cannot. I do agree with Dave Ramsey that most of the time, a solid state university can provide an education that’s near or equal to the education at a pricey private university. It’s what you do with the education that matters.

Do set some ground rules for your children, though. Tell them they are expected to maintain a certain grade point average. Tell them you expect them to finish in a certain number of years – four if that’s appropriate for their field – and that you won’t pay beyond that. In other words, you aren’t writing a blank check. If you want to pay for graduate school, and you can afford to do so, you can make that offer, but I would advise you to wait until they are well into college before agreeing to anything.

We’ve started saving for our three daughters’ education. I hope to be able to pay for them to attend a solid state university. I know that I’ll have to ramp up the savings to get them there. Yes, it’s daunting – but it’s a gift that will stay with them for the rest of their lives.

Wednesday, October 14, 2009

Dow tops 10,000 for first time in one year

By Dan Danford

Anyone in the financial industry had cause to smile today as they watched the Dow Jones Industrial Average climb over 10,000 for the first time in a year. What a wild ride it's been.

If you want to read all about it, start here:

We are excited to see the markets above 10,000 again. It surely demonstrates that investors are regaining confidence in the system, and that some sense of normalcy seems to be returning. Some companies are starting to see profitability again, and that's reflected in their rising stock prices. Of course, we have to also note that the recent past has seen highs on the Dow of 14,000, and lows of 6400. This has been a period of ridiculous volatility and we're hopeful - emphasize hopeful - that further good times lie ahead. No matter what, this is an encouraging sign, and we're pleased for Family Investment Center clients and other investors around the world.

Tuesday, October 13, 2009

Disability insurance is essential

We give out a financial tip on Twitter every day. For the past two weeks or so, we've given tips on disability insurance. This type of insurance is ABSOLUTELY essential for anyone in the work-force. Here are all the tips pulled together in one spot so you can review them. Please pass these on to friends who need it.

- Disability insurance is important. You have a greater chance of becoming disabled than dying.

- Look for disability insurance through your employer first. That is usually the best place to find it, and you’ll get a better rate as a member of a group.

- Disability insurance: one factor to examine is elimination period. That is the waiting period before payment begins. Longer = cheaper.

- Disability insurance: ask about waiver of premium. That means you won’t have to pay premium while you are disabled.

- Disability insurance: Inflation rider adjusts the amount of payout according to the cost of living. Great if you can get it.

- Disability insurance: Non-cancelable clause. As long as you pay the premium, the insurance company can’t cancel it.

- Disability insurance: Renewable means you can extend it if it expires.

- Disability insurance: Own occupation means that you will be paid a portion of your income if you cannot perform your current job.

- Disability insurance: Any occupation means that you will only be paid a portion of your income if you cannot work at all. Go for own occ if you can get it.

- Disability insurance: Some insurance companies market a hybrid policy; first 2 years is own occ, then switches to any occ.

- Disability insurance: Expect policy to pay out 60 to 70 percent of your income, maybe lower.

Monday, October 12, 2009

When is it time to sell?

On Mondays, we post a question and a response relating to finances. This week, we’re tackling a question that a great number of investors are pondering.

How do you know when it is time to divest of a particular stock or mutual fund and put your money in something else?

Make a change when something else offers genuinely better prospects. That's not an easy thing to know, especially for an amateur. With some 25,000 mutual funds or share classes, there is always something that might look better at a single point in time. People always flock to "safe" investments in a bear market, because they look good against the alternatives. But that's the wrong choice. The critical question isn't what looks better right now. The critical question is what looks better going forward. And Treasury Bills or bank certificates never compare better as we look forward to the next five to 10 years.

Others throw money at the hottest stocks or funds (as featured on the cover of Money magazine), but that rarely works, either. In truth, a fund or stock is called hot because it's recent performance is good. The best time to buy something is before it becomes hot. This is also true of much historical performance - things always look good after they've done well. Research shows that there is little evidence that past performance indicates much about the future (language the Securities and Exchange Commission requires in prospectus documents). Even the best funds in the world suffer occasional bad years. Is that necessarily a reason to change?

Everyone hates taking losses, but that's a bad reason to hold on to something. If you always take profits on your good things, and hold onto the bad to avoid losses, eventually you'll have an entire portfolio of bad investments. Focus on the future, not the past. Keep or buy things with good prospects, and dump the ones without. Take your losses like a grown-up, and move on.

Remember , too, that much investment news we encounter was crafted by public relations or sales professionals. So those great ideas we see were usually planted by someone. I've always rejected the notion that individual investors - including the typical stockbroker - can "outthink" the pros at Fidelity or Vanguard or American Century, with their legions of analysts. Did you know that 80 percent of trades on the NYSE are placed by institutional investors? That means that when you buy or sell something, the trade's other side is taken by a professional. Let that sink in for a minute. This is one of the best arguments for using mutual funds, and why so many professional advisors choose that approach.

This is another reason why we use Morningstar or other independent research firms in building client portfolios. We take responsibility for our decisions, and work on behalf of our clients. No one is going to "talk us into" making a trade or exchanging one investment for another. We'll make those decisions when - and only when - they make sense for clients. It's a huge benefit.

Thursday, October 8, 2009

Should you invest in gold?

Dan Danford regularly contributes to Dad's Divorce, a web site for men going through the divorce process. Recently, Dan addressed the idea of buying gold, which has seen a surge in value recently. Watch the video below to find out what Dan has to say about this investment option.

Tuesday, October 6, 2009

Overdraft fees only a problem for a few

By Dan Danford

Overdraft protection is a convenience that keeps us from being embarrassed when we make a mistake in our checkbook. Most of us wouldn't mind paying a fee when that happens occasionally. There are a group of customers who are chronic overdrafters (new word?), and they spend a fortune on overdraft fees. For them, opting out could be an answer, but I doubt they will do it. That would mean they'd have to stop spending when their account is empty, and most will reject that sudden and violent stop! Of course, what really happens with these chronic overdrafters is that the charges just keep adding to their balance until it become an uncollectible debt.

For most of us, the overdraft charges aren't a burden because we don't incur them. This is another case of government intervention because of an irresponsible few people. Everyone should consider the right approach for their family, but it's a non-event for most of us.

Here's a column from The Houston Chronicle that explains it all, and what some options are for those who are thinking of opting out of overdraft protection.

Monday, October 5, 2009

Managing a variable income

On Mondays, we answer a question from a reader. Today's question deals with variable incomes. If you have a question, please post it in the comments section.

QUESTION: I would like to set up a household budget, but my income varies, from as low as $2,000 per month to as much as $10,000 per month. How do I set up a budget on a variable income?

ANSWER FROM DAN DANFORD: There are lots of people like that, and the best solution isn't budgeting. It's saving. Expenses aren't as variable as income. They are pretty predictable, actually. Groceries, electricity, rent or mortgage, and on, and on ... the expense side of budgeting is easy. Just add up your monthly expenses over a six-month period and divide by six. That should give you a fair idea of how much you need each month.

The trick with variable income, though, is covering expenses in the months where income falls short. To do that, you need a savings reserve. Over that same six month period, you should have enough good months to offset the bad. To succeed, you'll need to set aside extra when you have it.

This seems an elementary lesson, but many folks blow it. When the good months come along, they spend it all. And in the bad months, they use credit cards to cover. Eventually, they meet financial disaster.

My recommendation is to accumulate enough money to cover six-twelve months of expenses without any income at all. That should be enough to regulate the inflows/outflows and meet emergencies. This is the best way to manage variable income.

One last point. Don't kid yourself about income (or let your sales manager kid you about income). Sometimes, "variable" is a descriptive word used to hide ridiculously low wages. After a reasonable period of time where the variation is always low, find another job. Everyone deserves a living wage, and there are good jobs for qualified people. Don't let anyone hold you back with false promises!