Wednesday, March 31, 2010

Dad's Divorce: Discipline and paying off debt

Dan Danford of the Family Investment Center regularly provides podcasts for Dad's, a web site for men going through the divorce process. This week, he answered a question from a viewer: I routinely have a credit card balance and can't seem to get it down thanks to high interest rates. What are some suggestions to getting my credit card debt under control?

Tuesday, March 30, 2010

Preventing debit card fraud

We should all be aware by now how easy it is for people to get our credit card numbers and run up huge purchases on the cards without our knowledge or consent. But when it's a debit card, it's all the more scary. There are some safeguards you can put into place to keep this from happening, or to simply be alerted when it does happen so you can stop it early.

Investopedia has a great article with some simple tips today on preventing debit card fraud. Read up here:

Thursday, March 25, 2010

Choose your executor wisely

We've been posting tips this week on Twitter @family_finances about creating a will, which is absolutely essential. We got a question from a follower about how to choose an executor. This is critical for your estate plan.

Question: I am planning to have a will written soon. How do I choose an executor? Should it be one of my adult children? An attorney? Are there professional executors?

Answer from Dan Danford: There are a number of things to consider. How complex is your situation? Are there a lot of things to sell? Is the estate large enough to file an estate tax return, and pay estate taxes? How about a final income tax return? How clean are the titles to your various assets?

Basically, the executor (called a personal representative in our state) is charged with tying up loose ends. They liquidate accounts, pay bills, collect debts, sell property, files reports, and finalize all financial aspects of your life. If you own most things jointly with your spouse, and your financial life isn't too complex, then a child or other relative can probably handle it. There's still one more test: would they want to? Paperwork can be burdensome, and some folks aren't tuned to that kind of chore. So, even if they can do it, is it something they'd welcome?

If that's not the case, a professional approach makes more sense. Some states have special fiduciary provisions that allow qualified people to work professionally as executors. In most places, your choices are going to be a bank trust department or attorney. The major complaint about this approach is cost; that is, professionals get paid for doing what a family member might do for free. But - and this is important - you're hiring someone with genuine expertise. In a complex estate, that can actually save money. They know taxes. They know investments. They know real estate markets. They probably know the Probate Judge! Truthfully, in many cases, it's money well-spent.

Of course, they don't know your family as well as you do, and that could be a challenge. On the other hand, it could be a good thing. Bottom line? You know your situation better than anyone else, and you need to decide who will settle your estate. It can save a lot of heartache later.

Tuesday, March 23, 2010

Modern Portfolio Theory: it still works

By Dr. Jason White
Director of Investments
Family Investment Center

I received a great deal of feedback on the optimism of my last column on investor capitulation. Thanks for taking the time to write and call. I love talking about this finance and economics with pros and novices alike.

On the off-chance that not too many of you subscribe to Financial Advisor magazine, I wanted to share my summary of an important article that appeared in the March 2010 issue entitled: “Markowitz: MPT Holds Up.”
MPT is the acronym for Modern Portfolio Theory, the only time-tested, scientifically-proved and academically-accepted method of managing investments for long-term success. Actually developed in the 1950s, MPT involves the search for optimal investment returns while simultaneously minimizing risk. Harry Markowitz, the creator of this strategy which I use religiously in practice with Family Investment Center, won a long overdue Nobel Prize in Economics in 1990. I recognize that the Nobel Committee is sometimes criticized for awards to candidates that baffle the public, but in this case, the award was absolutely justified.

The 82-year old Markowitz still teaches at the Rady School of Management at the University of California, San Diego. He is also an active financial consultant and is working on a new book.

Some have questioned the effectiveness of MPT during the most recent financial crisis. Yes, in times of panic, all historic correlations between assets tend toward one – meaning for short panic-stricken periods of time, there is no “safe haven” asset to avoid losses.

As the markets first stabilize, and then normalize, the old familiar patterns of risk-and-return emerge just as reliably as springtime in Northwest Missouri.

The patient and properly-advised investor rode the cycle, investing all along as stock prices took a nosedive in 2009. They did not jump ship or believe that this time it was really the end. And they were rewarded. With the Dow knocking on the door of 11,000, those who remained loyal and faithful to the modern implementation Markowitz MPT asset allocation doctrine are in fine shape. Those who chose the parachute, rather than the seatbelt, when the market turbulence hit have now missed nearly two-thirds of the recovery off of the lows from just one-year ago.

One professional I chatted with recently gloated about getting his clients out of the market before it hit the lows, but in the same breath, he lamented the fact that his timing indicators had not signaled a good re-entry point for him and his clients. This sort of story hurts my heart because I know what it means on a human level: a less secure retirement; a longer work life; a second-choice college for the kids.

Modern Portfolio Theory is the one and only one scientifically proven method for long-run investment success. The TV pitchmen, the investment commercial garbage, the book peddlers all claim it possible to “beat the market.” These claims are never proven true when the light of truth is shined on them. That is part of the reason these shows, pitches, and books have a short-shelf life. Good salesmen preying on primal motivating forces of human nature (primarily fear and greed) frame arguments in a believable way, and we bite.

Before you take your next sip of snake oil, check out Modern Portfolio Theory and the use of diversified asset allocation strategy to make these most important money decisions. I promise you over time you will be right!

Monday, March 22, 2010

Health Care Reform: For or Against, it's here

It remains to be seen if health care reform is going to save you and your family money in the long run. Whether you're in favor of the changes or in opposition, your best course of action is to get up to speed on the changes, and fast. In some cases, families can see a reduction in costs.

Some of the most touted changes are that health insurance companies can't decline coverage for a family if there is a child who has a pre-existing condition. That's certainly favorable, and I imagine there are many parents with sick children applauding that change. Also, parents can keep children on their health insurance policy until the children are 26. That may help some adult kids, as more are living with their parents after college instead of branching out on their own.

If you want to read all about the changes, check out this article from The New York Times, which compares the House and Senate bills:

Friday, March 19, 2010

Private schools: worth the cost?

By Robyn Davis Sekula

Here where I live in Indiana, our local school district announced four elementary schools are closing, including our school, Silver Street Elementary. My immediate reaction is dismay, followed by the natural question, "What are we going to do now?"

As I see it, a parent in this situation has three choices. They can home school, go with the new school the child is assigned to, or choose a private school. Our oldest child will be in the first grade this fall, and there are two more coming along behind her.

Whenever I don't know what to do, I do research. So, since I didn't know yet what elementary school would be ours next year, I started calling private schools and Googling private options. I discovered that all three of our children can go to a local Catholic elementary school for about $8,000 or less. That's a good price. I know it's a good education.

But I hesitate for this reason: if you start with a private school in the first grade, you're likely in it for the long haul, and just because costs are reasonable this year doesn't mean they will be in the future. That would leave us possibly having to yank our kids from private school down the road if our income dips, which is entirely possible. I'm self-employed, and my father's health is failing. I anticipate that I'll have more and more trips back home to Lynchburg, Va., where he is, and that one day, I'll also be caring for my mom. That responsibility will eat into my work schedule. I really don't want the pressure of paying for private school followed by college.

I've continued to gather information. The school district released maps showing us as redistricted to Fairmont Elementary School. I had a negative impression of the school, but as I thought about it more, I couldn't tell you why. So I decided to go on a fact-finding mission, if you will, and visit for myself. The school's principal and counselor took me and my husband on a 90-minute tour. We visited classrooms and every public space in the building, and I was incredibly impressed. I don't see private school as necessary.

The tough thing about evaluating education is that there are few ways to compare other than test scores and cost. Everything else is extremely open to interpretation, and usually is evaluated in more of an emotional way than anything else. It can be of vital importance for some families to have religion mixed in with their school day. For me, that's not preferable. I'd rather the school spend its time and energy teaching my child the stuff I don't know how to teach and that's factually based - math, science, history, English, etc. - and let me teach the religion at home. Religion is extremely easy to screw up, and the most subjective subject matter there is. I attended a very religious, conservative school, and I wince at some of the things I learned there. I'd rather teach my child that myself.

The summary: private school education should be evaluated on a cost basis first. If you can't afford it, or are barely affording it, don't do it. That's your first hurdle. Too many people think private primary education is crucial, and I'm just not convinced. It's not a fundamental right, and you aren't entitled to it.

Before you dismiss your public school as not good enough for your child, visit, ask a lot of questions, and evaluate. We discovered that Fairmont has the district's English as a Second Language program, and the kids in it are mixed in with the rest of the students and speak English quite fluently for the most part, which is a big bonus to me in terms of diversity and learning about the world. We also learned that Fairmont has a terrific and active theater program, which I think my oldest child would enjoy. We learned that the principal is an advocate for the school in every fashion, and that the school has zero tolerance for bullies (which is confirmed by a parent I know).

I'd love to hear your thoughts on private versus public education. If you have children, what choice have you made?

Thursday, March 18, 2010

Rear-view mirror reflections from Greenspan

Many say that Federal Reserve Chief Alan Greenspan's biggest failing was neglecting to identify, and plan for, the housing bubble. Greenspan recently presented a 48-page paper that discussed this very issue.

Here's Kansas's post from today, which is a story from The New York Times.

What's your feeling on this? Can bubbles be predicted? Can we deflate an economic bubble before it pops?

Wednesday, March 17, 2010

If retirement is 10 years away, rethink your portfolio

So what to do if your retirement is less than 10 years away? Great question. So we're posting it here. Thanks to Money magazine for the solid response.

Monday, March 15, 2010

Make money as an exec for rent

Fortune magazine wrote an interesting piece about how executives can market themselves as experts for rent. Temps aren't what they used to be - it can now be a much more elevated and influential position than in years past.

Read the full article here:

Wednesday, March 10, 2010

The most dismal science

By Dr. Jason White
Director of Investments
Family Investment Center

On March 9, 2009, investors capitulated. Capitulation is an important word in the world of finance and investing. Essentially it means that everyone who was going to flee the stock market, in fear that prices would continue to drop lower, had fled. Panic selling was done. The Dow Jones Industrial Average closed at 6,574. The S&P 500 had hit bottom a couple of days earlier at 676, and the technology-laden NASDAQ composite was at 1,268.

No one knew it at the time, but that was the bottom. The nadir. Capitulation happened right before our eyes. It was a tough time to be a long-term investor. But as always, it was the right strategy.

Today, markets have rebounded and the economy is growing again. The Dow is up 61 percent since capitulation. The S&P 500 is up 68 percent, and the NASDAQ has soared 85 percent higher. Nevertheless, stocks still have a lot of upside to go before reaching the pre-recession peak of 14,000+ on the Dow.

Many people refer to economics as the “dismal science” and often for good reason. For example, economists know that the last sector to recover after a recession is the labor market. Corporate employers are quick to layoff workers as the business cycle slumps, and then slow to rehire in the recovery.

This recession is not atypical.

Whether or not you follow economic statistics like I do, you have probably felt increased pressure to get more work done on the job than in the past. Maybe you are doing your own work plus half of the work a fired former co-worker may have been doing. You are stretched to the limit and stressed to the max. Economists have a happy name for the condition you find yourself in: increased productivity!

It is not at all unusual to see productivity gains during a recessionary period as the ranks of the unemployed swell. This is a by-product of a capitalist economy. As the economy and company sales continue to grow, employers will eventually hire again.

Job loss has flat-lined. A year ago, 700,000 more workers were being fired in a month than were being hired. Today it is about even. The unemployment rate peaked at 10.2 percent, and I will be surprised if we see a number significantly greater than this in the months to come as the economy continues to pick up steam.

It appears the worst is over from a macroeconomic point-of-view.

That said, recovery takes time. The unemployment rate will fall but at a frustratingly slow pace, especially for those who have been jobless for a long period of time. State and local government budgets will continue to be tight as tax revenue, much like the unemployment rate, lags economic activity. Of course, the federal government has an “advantage” in its ability to run deficits, but most other jurisdictions must balance their budgets.

Stay optimistic – it will be morning in America again soon.

Tuesday, March 9, 2010

Saving money when you don't make much

Dan Danford regularly records podcasts for Dad's, a web site that helps men going through the divorce process. Here's his latest, which is advice on saving for those who don't make a lot.

Monday, March 8, 2010

A No-Brainer: Stimulate Job Creation

By Dr. Jason White
Director of Investments
Family Investment Center

With one-sixth of 2010 already behind us – can you believe that?! – and Spring at our doorstep, I think it is a fitting time to again take a look into the economic crystal ball for emerging forces that will drive the domestic and global economy and markets.

Central bankers in the United States have their hand gripping the monetary tightening lever but have yet to give it a yank. The 25-basis point increase in the discount rate, the rate of interest that the Federal Reserve receives on loans to commercial banks, had many chicken-littles in the business media screaming that inflation must be coming in higher than forecast and that higher interest rates for businesses and consumers are coming soon.

In fact, this 0.25 percent increase was little more than a technical adjust by the Fed, with little broad monetary policy implications. Kansas City Federal Reserve President Tom Hoenig is voting for tighter monetary policy, but thus far, he is the only Fed policy-maker to go on the record with this view.

Don’t be surprised if interest rates remain where they are for all of 2010. This is a Congressional election year, and the Federal Reserve has tried very hard in past election cycles to remain monetarily-neutral as to avoid the appearance of favoring one party or another.

Inflation remains tame and unemployment high. These conditions support the thesis that easy money and low interest rates will be with us for the “foreseeable future” as Fed officials have stated.

Job growth has finally clawed its way near the top of the Congressional legislative agenda. Placing divisive health care proposals on the back-burner and coming up with an economic incentive bill for business hiring would make the President considerably more popular AND also be the best use of the legislative agenda at this time. The economy is still losing jobs, as unemployment numbers on Friday will likely show. We need a spark in the private sector, and I don’t think that a health care bill that doesn’t take full effect for several years is going to provide the juice.

A private sector job tax credit makes the most sense to me. Many firms I work with are on the fence with regard to hiring. They are nervous to add to their labor costs but also aware that the economy is growing and product demand will rise soon. A job tax credit for employers lowers the risk of hiring workers, gets people off unemployment and puts more spendable income in their wallets.

Corporate down-sizing has already wrung about as much cost-savings as we are likely to see, which has been reflected in higher than expected corporate earnings. Reduction in leverage and interest expense has also helped, but we are now at the stage in the economic cycle where businesses need top-line sales revenue growth, and that will come sooner rather than later – especially if a job stimulus tax credit is put into effect soon.

Politicians have the power to reduce unemployment, accelerate the economy recovery, and pay for it all from the higher tax revenues (not rates!) that will flow into the Treasury if a jobs stimulus bill is enacted and quickly signed to into law. My next bit of writing will be “Dear President Obama….” It can’t hurt to try!

Friday, March 5, 2010

Lake Forest stunner: Secret millionaire leaves fortune for Lake Forest College scholarships -

By Robyn Davis Sekula

Everyone loves a story about someone who lives frugally and after their death, a huge fortune is discovered and donated to a worthy cause. We love to think about who would get such a fortune if we had it - and how surprising them with the funds would be deliciously satisfying.

But I have a problem with these stories. They don't always reflect the near-abject-poverty that some of these donors choose to live in. They deny themselves every single luxury - including vacations, good food, a better home - to do something after they die, something they'll never see.

We are better served by living somewhat frugally, and yes, saving and investing, as this woman in Lake Forest, Illinois, did. But living that sparsely makes me sad. Our money is designed to give us some pleasure in life.

I wouldn't mind to have a sizable gift go to a cause I love after I die. But I want to live a little, too. I believe that healthy investing means you get to do both.

Lake Forest stunner: Secret millionaire leaves fortune for Lake Forest College scholarships -

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Thursday, March 4, 2010

The Death of Secrets

By Dan Danford, MBA, CRSP

It’s one of the profound bits of wisdom that comes with age. I’ve been walking this earth for over 50 years, and God has revealed a few truths in that time. Most were revealed bit by bit over decades of observation. Some are still unfolding, and I’ll grant that there are some lessons I may never learn (as my wife would gladly testify).

There are no secrets. Is the boss a bully? People already know. Is that neighbor creepy? People know. Is your child’s teacher lazy? People know. Does a colleague take unfair credit for projects or successes? Does a contractor use inferior materials? Did an insurance agent fudge the truth? Ditto. Ditto. Ditto.

Nothing drives this point home like the recent assassination of Hamas leader Mahmoud al-Mabhouh in Dubai. A team of (at least) 25 assassins killed al-Mabhouh in January, and the entire supposedly clandestine episode was captured by multiple cameras over a 24-hour period. Spies typically cover their tracks and carefully protect their identity, but this operation is fully documented by video. Almost as if the team decided in advance that secrecy was impossible, so why even bother?

Think about it. Who loves secrets? People who do bad things, mostly. Bribers and bribees. Spies. Crooks. Snotty teenagers, and people cheating on their spouses.
But truth is noble, and it rises above petty human manipulations and eventually bubbles up for all to see. Secrets are a force bred and borne in the dark, and they scurry for cover when the lights come on. And - this is very important - bright lights shine 24 hours a day in today’s world.

Celebrities know this. Paparazzi plague their lives with constant surveillance. From scandalous to tedious, a posse of photographers stands watch every minute to record the details of everyday life. Try something bad, or even something good, and it’s instantly posted to some website where it eventually worms its way into our common experience. There really are no secrets.

It’s not just celebrities, though. Do any of us truly believe we can avoid scrutiny? Most of us don’t have photographers lurking in the shadows, but we don’t live in the dark, either. People surround us, and they are instantly, powerfully, intertwined through social and technology connections. If any of us does anything that merits discussing, then someone, somewhere, will immediately discuss it.

I know a woman who is mean and vile and vindictive. But she can also be funny and charming and interesting when it suits her. Over several decades, I’ve watched her churn through assorted friends. Most of her friendships start innocently, but they all eventually sour and end badly. Those of us who know her watch the cycle repeat over and over again. We nod knowingly as she lures new victims, and wince as the inevitable unfolds. The same instinct that makes us want to help them also acknowledges that her initial charm is too powerful to overcome with a friendly warning.

A sincere friend once tried to warn me about another bad egg. “Everyone in our neighborhood was glad to see him move away,” he explained. I foolishly ignored this warning, only to regret it later. The truth was there all along; I just needed some personal experience to confirm that early warning. It was a very painful personal experience, just as helpfully hinted.

College athletics reinforces this point. Coaches come and coaches go, and the ones who are fired – which are many, actually – demand legal secrecy as a matter of course. This dark shroud is designed to protect both coach and university, but, in truth, protects neither one. See, the light of day shone brightly for years before the firing, and any wrongdoing by either party is generally known. The secrecy clause serves to fuel increased speculation, and prevents any official statements by anyone, but it’s a good bet that everyone already knows the truth. There are no secrets.

You might argue that these rotten people continue those bad patterns (as I noted above). Serial badness, if you please. And it is true that a planet with 7 billion people creates lots of new opportunities for them. My simple point is this: we know precisely who they are and what they do because there are no secrets. They think they are clever, but they’re not.

Narcissistic types always believe the world revolves around them, and because of that, they alone control the flow of information. Their world contains manipulation, and spin, and carefully constructed half-truths. As stars of their own movie, they tend to overlook that we’ve been observing them for years.

That’s the huge point they miss. We’ve already branded them as jerks, and bullies, and creeps. We know the crappy things they’ve already done and the secrets they hope to protect. It’s virtually impossible to hide something after it’s already seen the bright light of day.

Really. There are no secrets. That truth is rock solid. People are always watching, and they’ve been watching for a very long time. There are no secrets.

Wednesday, March 3, 2010

Earned Income Tax Credit helps workers with low incomes

By Robyn Davis Sekula
For most of our readers, the Earned Income Tax Credit is not something they'll be able to claim. It's specifically designed for low-income families - for those who work but don't make much. There's been some articles written about it lately because it isn't claimed as often as it could be, and of course because April 15 is rushing right for us. We think it's relevant not directly to our core readership, but perhaps for their children, grandchildren, or friends and extended family. Our hope is that our readers will pass along this information to those who they think can use it. has a great series of articles exploring various tax-related topics, and today's is on the EITC. To read the article, go here:

Earned Income Tax Credit

Tuesday, March 2, 2010

Canceling credit cards won't hurt your FICO score

There are plenty of folks out there who would like to cancel their credit cards - maybe they've got too many, or they're not using them - but won't do so for fear of it dinging their credit. We found an insightful look at the elements of how a credit score is calculated on today. It goes into how credit cards affect a credit score, and I think it's worth looking at. Here's the article:

Monday, March 1, 2010

Search for good deals on credit cards

Editor's note: Each week we answer a question from a follower on Twitter or blog reader. This week, we got a question on Twitter that we thought deserved more than 140 characters worth of an answer.

Question from @jimmyfaseler : I'm 24, graduated college loan/debt free, have no credit history and need a credit card for the first time. Suggestions?

Answer from Dan Danford: First of all, congrats on making it to age 24 without debt. That's no small accomplishment in today's world. My guess is that - even without credit cards or debt - you have some payment history from utility or phone payments. Typically, lenders look for a few things before making a loan. The want you to have a regular job, an they like to see that you've paid your bills on time.

My suggestion is to get a decent credit card and pay it off each month. You'll build credit without incurring a lot of debt. Or, you could take out a small loan at the bank and pay it off. Either way, you'll build some good credit history. Bank loans are fairly easy to get if you have collateral. It's easy for them to repossess a car if you miss payments.

Getting a credit car isn't so tough either, but it's complicated by the number of issuers. A MasterCard or Visa, for instance, is issued by a bank. And each bank has different terms and conditions. So there are hundreds of different Visa cards with different terms. Some of them aren't so favorable.

My suggestion is to research credit cards on the Internet. Don't disregard American Express or Discover. American Express particularly can be a good way to build your credit score, as it is in fact a charge card that requires you to pay off the entire balance each month, although it does sometimes have an annual fee. Search for a card with low or no annual fees, and favorable terms if you pay it off each month. Card issuers make some money from merchants, too, so you can actually find a reasonable card if you look. Good luck!