Playing the Powerball Odds?

Driving to work this morning, the fine folks on 1180 WHAM were sharing their thoughts on what they would do with the estimated jackpot of $500 million should their numbers be called.  It got me thinking.  Did you know that that you have a better chance of picking a perfect NCAA tournament bracket or becoming President than winning the jackpot?   Let’s say you do win.  After the cash payout and taxes, your sum has been more than cut in half, but with some $200,000,000 in your pocket, you’re still a happy camper, even though studies have shown that you may not be as happy as you think.

Enough fun, here’s my point:  Instead of taking a shot at something that is less than likely to happen, why not replace that hope with tax-free income when you’re ready to retire?  Here’s how:

Funding a Roth IRA allows you that benefit, and you don’t need to win Powerball to start one.  Many mutual funds will allow you to start a Roth for as little as $50 each month.  That’s $600 over the course of a year.  Not a huge amount by any means, but consider:  if you started today with $50 each month, and continued for each month over the next 30 years, you will have invested $18,000 over that period.  If you earn 5% over that time, 30 years from now your investment will have grown to $41,856 – a return on your original investment of 132%.  And if you should need access to your cash in the meantime, your contributions come back to you tax-free, as do your earnings, if you wait until you’re 59½.

Something to think about if you find yourself with a little extra time while waiting to pick up a Powerball ticket.

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Jargon, Big Words, and Wasting Your Time

“We are going to allocate your portfolio in such a way to minimize your downside risk while still maintaining strong cash inflows with the potential for capital appreciation.”

Did you get all of that?  I’m the one who wrote it, and I’m still not convinced!

Now, let’s try again.

“Our goal is to give you a plan to provide you with income and growth, while trying to minimize the risk that comes along with any investment.”

Better?

It is very easy for financial advisors to fall back on jargon and big words that we think make us sound smarter in front of our clients.  Truth is it does nothing except confuse and even intimidate.

When I worked at 13WHAM, my goal was to always “say it simple.”  Instead of talking about the Buffalo Bills lack of an edge rusher and lack of size in a 3-4 defensive front, isn’t it easier to just say the Bills defense can’t sack the quarterback enough?  Wit and wisdom are wonderful things, but when nobody understands what you’re saying, their time was just wasted.

The goal is the same as a Financial Advisor.  Whether you are planning for retirement, your child’s education, or starting a new life with your husband or wife.  To help you understand how to best achieve your goals in order to give you peace of mind and confidence that you’re on the right track.  That way, when we walk out the door, you’re excited to get started, not scratching your head wondering, “what did he just say?”

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

All Quiet on the Facebook Front

Things have certainly calmed down since May 18^th when I spent almost two straight hours on the phone talking with folks about Facebook.  It was THE thing in the week leading up to its IPO and it seemed like everybody wanted a piece of the action.

At the time, our advice was to be “cautious, not euphoric,” because there is usually something that can be said for not following the crowd when it comes to investing.

By now, we know what happened.  To call Facebook’s IPO a “mess” would be an understatement.  After briefly passing $45 on the first day of trading, it took FB just two and a half weeks to fall 43% to $25.52.  All of a sudden, nobody wanted it.

Then a funny thing happened.  Facebook’s stock started to rise, reaching $33.43 at one point Friday, June 22, 2012, an increase of 31% since hitting bottom in early June.  As of mid-afternoon Friday, FB had risen just over 4% for the day alone.

Now, I am not saying that just because Facebook’s had a nice run that we should all start to “Like” it.  The point is, when you follow the crowd, it can be tough to make money.

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Ground Rule #3: Money in Your Pocket

The first thing you do when signing up for your employer’s 401(k) or 403(b)  is decide how much to put in out of every paycheck.  You don’t need my advice for that, of course; it’s a function of how much you can afford.  But once you decide on the amount, on how much you’re willing to save toward your future, that’s where this bit of advice comes in.

You already know there is a tax savings from contributing to your plan. Here’s how that works: every dollar you contribute is subtracted from your pay before Federal & State withholding taxes are calculated.  Since your contribution escapes income tax, the amount of tax withheld from your pay is less, thus your net pay rises a bit. Put another way, for every dollar you put in your plan, your take-home pay will only drop by 75 or 80 cents.   It really means that you’re putting money in your plan that otherwise would have gone to taxes, but it also means that you need to do a little simple math to grow your savings faster than the average person. 

To keep the math at its simplest do this: settle on how much you can afford to contribute and divide it by .8 to arrive at a slightly larger amount, which is what you should contribute.  If you decide that $25 is what you can afford, dividing that by .8 gives you $31.25.  The effect is to allow you to contribute the $31.25 but see your net pay reduced by only about $25.  The extra six bucks is what would otherwise go for taxes – you are legally keeping the Fed & State share and investing it!  That’s money in your pocket.

The numbers in this example are approximate, always consult your advisor or sharpen your pencil to get a result specific to your circumstances.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Ground Rule # 7: Do the Opposite

Working my way up we have touched on my rules #10, #9, and #8, all of which are very basic “starter” rules for getting involved with your 401(k) or 403(b) plan at work. Today’s rule assumes you are a plan participant and have been contributing for a while. At some point you start to think about what if any adjustments you should make to the investments in their plan. After all, you get your statement or go online, you see the performance of your funds and of all of the available choices and there is a temptation to move some money into the funds that have done best over the last quarter or year. We see funds flow into growth funds during strong bull markets and into cash in bear markets. It’ human nature – you see a fund with a great quarter or even better, a great year or two. Maybe one (or more) of the funds you’re in isn’t doing so well. So you switch.

Eight times out of ten you will have been better off not making that switch. The hot fund has turned cold (in some cases stone cold). So should you never make a change? My rule #8, Better Than a Crystal Ball, suggests using just 4 funds in your plan. Once you have the 4, simply manage them by rebalancing once a year. Bring all of the percentages back in line, swapping a little out of the fund or funds that have done the best and into the laggards so that you are back to 25% each. But wait – no one wants to put money into the laggard. Everyone wants to put more in the best performer. By doing as I suggest you will be going against the flow, being counterintuitive, contrarian. You don’t make money in the financial markets by following the herd. You make it by doing the opposite.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Gift of Time

Have you ever thought about time as an investment?  Recently I came across an article where the author wrote about the best financial advice he had ever received: “invest your time, don’t spend it.”

This led me to a similar article which also discussed the idea of spending vs. investing time.

In the end, both articles provide examples of activities where we “spend time” and examples where we “invest our time.”  I often say “it’s not how much you make, it’s how much you save” that will determine how successful you’ll be in accumulating wealth, and the same could be true for time.  Replace the word Money with the word Time and see how interchangeable they are!

This got me thinking about how many of my clients rely on me to oversee their investments because they don’t have the time; or prefer investing their time with their family, their faith, or friends.  Think of someone that you think is “very successful.”  Ask them what they do with their time and see if they’re “spending” it or “investing” it.

Call or stop by our office anytime, to meet with me personally, and give yourself the “gift of time.”

 

Joe Boyd
Financial Advisor
Brighton Securities

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities)

Crowd Funding vs. Fat Cats

We regularly get questions from people wanting to invest in “hot” new companies. Lately all the media buzz about a looming public offering of shares from Facebook has more people than ever wondering how they can get in on the action.

The answer usually is: they can’t.

Think about it: people are interested because they expect that an investment in something like Facebook could make them some quick cash, maybe a lot of it, and there’s a good chance they could be right.  So ask yourself this – would the big Wall Street underwriters who bring such firms to market really let the average investor make some easy money, or would they share the bounty with their favored fat cats? Remember who we’re talking about. These are many of the same firms who brought us the financial crisis, took huge bailouts, then paid millions in bonuses to retain their “best” people. They don’t exist for the average investor.

That’s where “crowd funding” comes in. The theory is that small startups can go to the public – the average investor – and get investment capital to start and grow businesses.  NPR’s Morning Edition did a story about crowd funding this week.  Sounds like a fine idea, but lurking behind it s the ever-present specter of securities fraud. Stock scammers are not new, and a hallmark of their crooked trade is to prey on the unwary, often in modest amounts. It’s not hard to imagine a website touting plausible-sounding “up-and-coming” companies and encouraging the unwary to make a small investment.  Plenty of people might “invest” $5, $100, $1000 hoping for a long-shot win. After all, people throw away money on lottery tickets every day. Experience suggests that such sites would pop up, collect money, and disappear, leaving investors with nothing and regulators hunting a thin trail.

Crowd funding sounds like a good idea, but without adequate safeguards for the investing public, it won’t be a path to Fat Cat status.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Update: Apple as an Income Stock

In my previous post I discussed the potential of Apple becoming an income stock. Today the company announced that it would begin paying a $2.65 quarterly dividend, a current yield of about 1.8%. Along with the dividend Apple plans to buy back $10 billion of its stock. I believe returning capital to the shareholders is the right move for Apple. They will retain more than enough cash to continue research & development as well as any acquisitions the company might seek. The shareholders are the owners of the company and if management is not putting this excess cash to work, it should return it. As I mentioned in my previous post, a dividend will make for an interesting dynamic as the company now fits the bill for funds/investors who seek current income from their investments. Apple is up nearly 50% year-to-date. I will be interested to see the effects of this fundamental change as time goes on.

Sam DiNorma

 (This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Cycles

Recently, my colleague Brennan published a post relating our current economic climate to that of the 1970’s.  This concept of a cyclical economy is something that has been studied in great detail for many years.  As Brennan posed, history never repeats itself exactly, but there are often many measurable similarities. I will refrain from discussing the statistics, historical and mathematical studies on cycles (believe me, there are thousands).

What I believe to be more important are the emotional effects on investors.  No matter how many economic crises we have, or periods of time where it is near almost impossible to lose money in the markets, we seldom consider anything but the present.  This is why it’s so important to have an evenhanded, unbiased plan for reaching your financial goals. When you’re down on your luck it seems as if things will never get better and when you’re flush you convince yourself that this will go on forever.  The same is true with investing, where mother market will always find a way to surprise you.

Sam DiNorma

 (This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Apple As An Income Stock

Yesterday, Apple held its annual shareholder meeting. One of the hot topics discussed in this meeting was Apple’s massive, almost $100 billion, cash reserve. Chief Executive Officer Tim Cook reiterated that the tech giant is still exploring its options for putting this cash to work and that paying a regular dividend is not out of the question.

Apple hasn’t paid a dividend since 1995 when Steve Jobs returned to the company and transformed it into one of the largest companies in the world. Jobs was adamant about retaining profits rather than returning them to shareholders in the form of a cash dividend. Cook, however, is not opposed to the idea, though no decision has been made as of yet.

The implications of an Apple dividend are substantial. The change would attract private investors who typically accumulate shares in dividend paying companies. An even larger implication is the effect it would have on mutual fund managers. Most mutual fund managers operate under a stringent investment policy. While they may find Apple to be an attractive investment, they may not be allowed to hold it within their fund if, for instance, the fund’s goal is to invest in income generating stocks. The inclusion of a dividend could cause a very large amount of accumulation as certain fund managers might finally be able to put Apple on their allowable list.    

Sam DiNorma

 (This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).